-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QPJTnYLau+pdIqD0iHYRXId8H3tNFs4AdYP9YRqxHTfMbYFJ3CyE/MkYXmlT4KI9 k46vDyjJC5zSmQuah+Ga/w== 0001157523-05-002692.txt : 20050321 0001157523-05-002692.hdr.sgml : 20050321 20050321151322 ACCESSION NUMBER: 0001157523-05-002692 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050107 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050321 DATE AS OF CHANGE: 20050321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL FUSION INC/NJ/ CENTRAL INDEX KEY: 0001057257 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 133817344 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24073 FILM NUMBER: 05694075 BUSINESS ADDRESS: STREET 1: 4940-A CORPORATE DRIVE CITY: HUNTSVILLE STATE: AL ZIP: 35805 BUSINESS PHONE: 2568372620 MAIL ADDRESS: STREET 1: 4940-A CORPORATE DRIVE CITY: HUNTSVILLE STATE: AL ZIP: 35805 FORMER COMPANY: FORMER CONFORMED NAME: IBS INTERACTIVE INC DATE OF NAME CHANGE: 19980306 8-K/A 1 a4846993.txt DIGITAL FUSION 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM 8-K ------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 January 7, 2005 Date of report (date of earliest event reported) ------------- DIGITAL FUSION, INC. (Exact Name of Registrant as Specified in its Charter) ------------- Delaware 0-24073 13-3817344 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 4940-A Corporate Drive, Huntsville, AL 35805 (Address of Principal Executive Offices) (256) 837-2620 (Registrant's telephone number, including area code) ------------- Check the appropriate box below if the Form 8-K filing in intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14D-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Section 1 - Registrant's Business and Operations Item 1.01 Entry into a Material Definitive Agreement. On March 10, 2005, Digital Fusion, Inc. ("Company") entered into an increase to the Loan Agreement by and among the Company, each of the Guarantors and First Commercial Bank of Huntsville. Among other things, the Amendment (i) increases the line of credit, not to exceed $2,500,000 (ii) extends the maturity date to April 15, 2006, (iii) has an interest rate of prime and (iv) is secured by the Company's receivables and certain guarantees. Section 2 - Financial Information Item 2.01 Completion of Acquisition or Disposition of Assets. On January 7, 2005, the Company filed a Current Report on Form 8-K (the "Original 8-K") to report that pursuant to a Stock Purchase Agreement dated October 28, 2004 by and between Digital Fusion, Inc. ("Digital Fusion") and Michael W. Wicks ("Wicks"), Digital Fusion acquired all of Wicks' outstanding capital stock of Summit Research Corporation ("Summit"). The Original 8-K is incorporated herein by this reference. This amendment is being filed to include the financial statements required by Item 9.01 of Form 8-K. Section 9 - Financial Statements Exhibits Item 9.01 Financial Statements and Exhibits (a) Financial Statements of Business Acquired The audited financial statements of Summit Research Corporation for the period ended September 30, 2004; and for the year ended December 31, 2003 appear beginning on page F-1 of this Current Report on Form 8-K/A and are hereby incorporated by reference herein. (b) Pro Forma Financial Information The Unaudited Pro Forma Condensed Consolidated Statement of Operations of Digital Fusion, Inc. ("DFI") and Summit Research Corporation ("Summit") for the Year Ended December 31, 2003. The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine-months Ended September 30, 2004 of DFI and Summit. The Unaudited Pro Forma Condensed Consolidated Balance Sheet of DFI and Summit at September 30, 2004. (c) Exhibits Exhibit No. Description ----------- ----------- 10.1* Loan Agreement, note and security agreement and commercial security agreement, each dated March 10, 2005, among First Commercial Bank of Huntsville and the Company, for a $2,500,000 revolving line of credit. 10.2* Security and Subordination Agreement, dated January 3, 2005, by and among First Commercial Bank of Huntsville, the Company and Michael W. Wicks. 10.3* Stock Purchase Agreement, dated as of October 28, 2004, by and between the Company and Michael W. Wicks. 10.4* Convertible Promissory Note, dated January 3, 2005, by and between the Company and Michael W. Wicks. 10.5* Registration Rights Agreement, dated January 3, 2005, by and between the Company and Michael W. Wicks. 10.6* Escrow Agreement, dated October 28, 2004, by and among the Company, Michael W. Wicks and Synovus Trust Company. 10.7* Employment Agreement, dated January 3, 2005, by and between the Company and Michael W. Wicks. 10.8* Employment Agreement, dated January 3, 2005, by and between the Company and Steven L. Thornton. * Filed herewith. 1 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: March 21, 2005 DIGITAL FUSION, INC. By: /s/ Roy E. Crippen, III --------------------------------------------- Roy E. Crippen, III, Chief Executive Officer, and Chairman of the Board 2 Summit Research Corporation Financial Statements For the Period Ended September 30, 2004 and the Year Ended December 31, 2003 Contents Independent Auditors' Report on Financial Statements F-1 Financial Statements: Balance Sheets F-2 Statements of Operations F-3 Statements of Changes in Stockholder's Equity F-4 Statement of Cash Flows F-5 Notes to the Financial Statements F-6 - F-10 Independent Auditors' Report Board of Directors Summit Research Corporation Huntsville, Alabama We have audited the accompanying balance sheets of Summit Research Corporation as of September 30, 2004 and December 31, 2003, and the related statements of operations, changes in stockholder's equity, and cash flows for the period and year then ended. These financial statements are the responsibility of the management of Summit Research Corporation. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Summit Research Corporation as of September 30, 2004 and December 31, 2003 and the results of its operations and its cash flows for the period and year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Pender Newkirk & Company Certified Public Accountants Tampa, Florida January 28, 2005 F-1
Summit Research Corporation Balance Sheets September 30, December 31, 2004 2003 ----------------------------------------- Assets Current assets: Cash $ 421,206 $ 459,250 Accounts receivable 1,779,384 905,212 Unbilled accounts receivable 116,447 68,638 Stockholder receivable 400,000 - Other current assets 37,288 26,200 ----------------------------------------- Total current assets 2,754,325 1,459,300 Equipment, net of accumulated depreciation of $67,718 and $32,661 at September 30, 2004 and December 31, 2003, respectively 127,387 137,245 ----------------------------------------- $ 2,881,712 $ 1,596,545 ========================================= Liabilities and Stockholder's Equity Current liabilities: Accounts payable $ 447,168 $ 25,365 Accrued salaries and wages 841,776 630,845 Deferred revenue 210,575 - Billings in excess of cost and estimated earnings 223,459 235,052 ----------------------------------------- Total current liabilities 1,722,978 891,262 ----------------------------------------- Stockholder's equity: Common stock; $.01 par value; 100,000 shares authorized; 80,000 shares issued and outstanding 800 800 Additional paid-in capital 495 495 Retained earnings 1,157,439 703,988 ----------------------------------------- Total stockholder's equity 1,158,734 705,283 ----------------------------------------- $ 2,881,712 $ 1,596,545 =========================================
The accompanying notes are an integral part of the financial statements. F-2
Summit Research Corporation Statements of Operations Period Ended Year Ended September 30, December 31, 2004 2003 ---------------------------------------- Net sales $ 6,416,972 $ 4,970,191 Cost of goods sold 5,515,406 4,076,845 ---------------------------------------- Gross profit 901,566 893,346 Selling, general and administrative expenses 350,497 370,999 ---------------------------------------- Income from operations 551,069 522,347 Interest income 2,382 833 ---------------------------------------- Net income $ 553,451 $ 523,180 ========================================
The accompanying notes are an integral part of the financial statements. F-3
Summit Research Corporation Statements of Changes in Stockholder's Equity For the Period Ended September 30, 2004 and the Year Ended December 31, 2004 Common Stock Additional ---------------------- Paid-In Retained Shares Amount Capital Earnings Total -------------------------------------------------------------------------- Balance, December 31, 2002 80,000 $ 800 $ 495 $ 300,808 $ 302,103 Dividends paid (120,000) (120,000) Net income for the year 523,180 523,180 -------------------------------------------------------------------------- Balance, December 31, 2003 80,000 800 495 703,988 705,283 Dividends paid (100,000) (100,000) Net income for the period 553,451 553,451 -------------------------------------------------------------------------- Balance, September 30, 2004 80,000 $ 800 $ 495 $ 1,157,439 $ 1,158,734 ==========================================================================
The accompanying notes are an integral part of the financial statements. F-4
Summit Research Corporation Statements of Cash Flows Period Ended Year Ended September 30, December 31, 2004 2003 ------------------------------------------------ Operating activities Net income $ 553,451 $ 523,180 ------------------------------------------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,057 27,141 (Increase) decrease in: Accounts receivable (874,172) (470,247) Unbilled accounts receivable (47,809) (53,464) Prepaid and other current assets (11,088) (10,696) Other assets 4,697 Stockholder receivable (400,000) Increase (decrease) in: Accounts payable 421,803 7,595 Accrued expenses 210,931 343,363 Deferred revenue 210,575 Billing in excess of cost (11,593) 193,121 ---------------------------------------- Total adjustments (466,296) 41,510 ---------------------------------------- Net cash provided by operating activities 87,155 564,690 Investing activities Acquisition of equipment (25,199) (109,641) Financing activities Dividends paid (100,000) (100,000) ---------------------------------------- Net (decrease) increase in cash (38,044) 355,049 Cash, beginning of period/year 459,250 104,201 ---------------------------------------- Cash, ending of period/year $ 421,206 $ 459,250 ========================================
Supplemental disclosure of cash flow information: During 2003, the Company distributed a $20,000 stockholder receivable in lieu of a cash dividend. The accompanying notes are an integral part of the financial statements. F-5 Summit Research Corporation Notes to Financial Statements For the Period Ended September 30, 2004 and the Year Ended December 31, 2003 1. Background Information and Change in Ownership Summit Research Corporation (the "Company") is an Alabama corporation incorporated on October 19, 2001. The Company's principal line of business is the research and development of government aerospace technologies. The principal market in which the Company operates includes government contracts to provide engineering and other technical support services to the U.S. Army Aviation & Missile Command at Redstone Arsenal, Alabama. Engineering disciplines include modeling and simulation, hardware test and evaluation, and mechanical design and prototype fabrication. Other technical skills include information management systems and program analysis. The corporate headquarters is located in Huntsville, Alabama. Effective as of the close of business on January 3, 2005, Digital Fusion, Inc. acquired all of the outstanding capital stock of Summit Research Corporation. Digital Fusion, Inc. paid $1,600,000 cash and 575,000 shares of its stock. In addition to the initial payments, the stockholder will be able to receive additional consideration of $600,000 on the six-month anniversary of the closing, plus an additional amount equal to the excess of the Company's tangible net worth at the closing date in excess of $900,000. In addition, the stockholder will receive a convertible promissory note in the cumulative amount of $2,700,000, which shall be reduced by the extent that the Company's tangible net worth is less than $900,000. 2. Significant Accounting Policies The significant accounting policies followed are: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. F-6 Summit Research Corporation Notes to Financial Statements For the Period Ended September 30, 2004 and the Year Ended December 31, 2003 2. Significant Accounting Policies (continued) Accounts receivable consist primarily of receivables for services, as well as receivables that are a function of the Company's billing process, which is determined by the contract terms. The Company records an allowance for doubtful accounts for any amounts that may not be recoverable based on an analysis of the Company's prior collection experience, customer credit worthiness, current economic trends, and subsequent cash collections. Based on management's review of accounts receivable, no allowance for doubtful accounts is considered necessary at September 30 2004 and December 31, 2003. The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables. The Company recognizes revenue under the following two methods. The majority of the Company's revenue is recognized on a time and material basis as services are provided and products and materials are sold to customers. In the event that there are significant performance obligations yet to be fulfilled on consulting and design projects, revenue recognition is deferred until such conditions are removed. The Company also recognizes revenue from contracts under the percentage-of-completion method. The estimated revenue for each contract represents the percentage of estimated total revenue that costs incurred to date bear to estimated total costs based on the Company's current estimates. With respect to contracts that extend over one more accounting periods, revisions in the costs and revenue estimates during the course of the work are reflected in the period the revisions become known. When current estimates of total contract costs indicate a loss, provision is made for the entire estimated loss. For projects that the customer has prepaid but services have not been performed, deferred revenue is recorded on the balance sheet. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. General and administrative costs are charged to expense as incurred. Equipment is recorded at cost. Depreciation is computed using an accelerated depreciation method over the estimated useful lives of the respective assets, ranging generally from five to seven years. Maintenance and repairs are charged to operations when incurred. When equipment is sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Advertising costs are charged to operations when the advertising first takes place. Advertising expense totaled $1,625 and $240 for the period ended September 30, 2004 and the year ended December 31, 2003, respectively. F-7 Summit Research Corporation Notes to Financial Statements For the Period Ended September 30, 2004 and the Year Ended December 31, 2003 2. Significant Accounting Policies (continued) The Company, with the consent of the stockholder, has elected under Sections 1361 through 1379 of the Internal Revenue Code to be treated substantially as a partnership instead of as a corporation for income tax purposes. As a result, the stockholder will report the entire corporate taxable income on his/her individual tax return. Therefore, no provision for income taxes has been made to these financial statements. 3. Uncompleted Contracts Information with respect to uncompleted contracts is summarized as follows:
2004 2003 --------------------------------- Costs incurred to date $ 346,709 $ 172,086 Estimated earnings thereon 51,163 51,431 --------------------------------- 397,872 223,517 Less billings to date 621,331 458,569 --------------------------------- $ (223,459) $ (235,052) ================================= Billings in excess of costs and estimated earnings $ (223,459) $ (235,052) =================================
4. Equipment Equipment consists of:
2004 2003 ------------------------------ Computer equipment $ 106,163 $ 94,897 Office equipment 6,693 300 Automobiles 73,782 73,782 Other 8,467 927 ------------------------------ 195,105 169,906 Less accumulated depreciation 67,718 32,661 ------------------------------ $ 127,387 $ 137,245 ==============================
F-8 Summit Research Corporation Notes to Financial Statements For the Period Ended September 30, 2004 and the Year Ended December 31, 2003 5. Credit Facility and Line of Credit The Company has a credit facility with a major credit card company with an interest rate of 18 percent on any past due balances. As of September 30, 2004, the Company had an outstanding balance of $74,796 on this credit facility, which has been included in accounts payable. The balance on this credit facility is due monthly. The Company has a bank line of credit with a maximum limit of $800,000. Interest is at the bank's base lending rate of 4.75% at September 30, 2004 with interest payable monthly and the balance maturing on February 13, 2005. The line is collateralized by the Company's assets. 6. Pension and Profit-Sharing Plans The Company has a 401(k) profit-sharing plan that covers substantially all employees who meet certain eligibility requirements. Company contributions are at the discretion of the Board of Directors. The Company may make a matching contribution on a portion of the employee deferral amount, as well as an employer contribution to the profit-sharing plan. The total amount contributed for the period ended September 30, 2004 and the year ended December 31, 2003 amounted to $436,146 and $405,865, respectively, which included a safe harbor match to satisfy certain federal tax regulations. 7. Lease Commitments The following is a schedule by year of future minimum rental payments required under operating leases that have an initial or remaining noncancelable lease term in excess of one year as of September 30, 2004: Year Ending September 30, ------------- 2005 $ 39,951 2006 41,424 2007 42,955 ------------ $ 124,330 ============ Rent expense amounted to $29,963 and $3,329 for the period ended September 30, 2004 and the year ended December 31, 2004, respectively. F-9 Summit Research Corporation Notes to Financial Statements For the Period Ended September 30, 2004 and the Year Ended December 31, 2003 8. Related Party Transaction During 2004, the Company purchased $400,000 of certificates of deposit that were titled either in the name of the stockholder or in the joint names of the stockholder and the Company. The amount has been recorded as a stockholder receivable as of September 30, 2004. Subsequent to September 30, 2004, these certificates of deposit were surrendered and the cash was returned to the Company. 9. Major Customers of the Company Three customers accounted for 96 and 99 percent of the Company's revenues for the period ended September 30, 2004 and the year ended December 31, 2003, respectively. At September 30, 2004 and December 31, 2003, accounts receivable include approximately 98 percent from these clients. F-10 Item 9.01 (b) Pro Forma Financial Information DIGITAL FUSION, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION AT SEPTEMBER 30, 2004 AND FOR THE NINE MONTHS THEN ENDED AND THE YEAR ENDED DECEMBER 31, 2003 The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 2004 and the unaudited pro forma condensed consolidated statement of operations for the nine months then ended and the year ended December 31, 2003 are based upon historical consolidated financial statements of Digital Fusion, Inc. ("DFI") and Summit Research Corporation ("Summit") adjusted to give effect to the January 3, 2005 acquisition of Summit by DFI. DFI acquired 100% of the stock of Summit for $1.6 million cash, $2.7 million convertible note, $898,692 note and 575,000 of DFI's common stock. The unaudited pro forma condensed consolidated statements of operation have been prepared assuming that the acquisition occurred on the first day of the periods presented therein. These unaudited pro forma consolidated statements of operation are not necessarily indicative of the operating results or financial position of future operating results. The pro forma adjustments give effect to available information and assumptions that DFI believes are reasonable. The pro forma condensed financial information should be read in conjunction with DFI's historical consolidated financial statements and notes thereto and the historical consolidated financial statements of Summit and the notes thereto.
DIGITAL FUSION, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 (in thousands, except per share amounts and footnotes) Condensed Historical Pro Forma ----------------------------- ---------------------------------- DFI Summit Adjustments Combined -------------- ----------- -------------- ------------- Revenues $ 6,420 4,970 11,390 Cost of revenues 4,905 4,077 8,982 -------------- ----------- -------------- ------------- Gross profit 1,515 893 2,408 Selling, general and administrative expenses 1,715 371 2,086 -------------- ----------- -------------- ------------- Income (loss) from operations (200) 522 322 Interest expense, net 195 (1) 233 (1) 427 Intrinsic value of convertible debt - - 224 (4) 224 -------------- ----------- -------------- ------------- Net income (loss) before income taxes (395) 523 (457) (329) Income taxes - - (2) - (2) - -------------- ----------- -------------- ------------- Net income (loss) $ (395) 523 (457) (329) ============== =========== ============== ============= Basic and diluted net income (loss) per share $ ($0.06) ($0.04) ============== ============= Weighted average number of common shares used in net income (loss) per share computation 7,168 575 (3) 7,743 ============== ============== =============
(1) The $2.7 million loan accrues interest each month the DFI stock price exceeds an average price of $2.80. The pro forma adjustments include $131,000 of imputed interest for this loan. In addition, estimated interest expense of $54,000 for the $899,000 loan at 6% interest rate, $36,000 for the $700,000 line of credit at Prime plus 1% and $12,000 for the $300,000 line of credit at Prime is recorded as a pro forma adjustment. (2) Prior to January 3, 2005, Summit was an S Corporation and did not record any income tax expense. Summit would have recorded an estimated $200,000 of income tax expense if this transaction had occurred at the beginning of this period. This tax expense would have been offset by DFI's tax benefit. (3) 575,000 shares of DFI's common stock were issued in conjunction with the Summit acquisition (4) Record $224,000 amortization for the intrinsic value of the embedded convertible debt option. 3
DIGITAL FUSION, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (in thousands, except per share amounts and footnotes) Condensed Historical Pro Forma ----------------------------- ----------------------------------- DFI Summit Adjustments Combined ------------- ------------ -------------- ------------- Revenues $ 5,165 6,417 11,582 Cost of revenues 4,375 5,516 9,891 ------------- ------------ -------------- ------------- Gross profit 790 901 - 1,691 Selling, general and administrative expenses 1,309 350 - 1,659 ------------- ------------ -------------- ------------- Income (loss) from operations (519) 551 - 32 Interest expense, net 131 (2) 174 (1) 303 Intrinsic value of convertible debt - - 168 (4) 168 ------------- ------------ -------------- ------------- Net income (loss) before income taxes (650) 553 (342) (439) Income taxes - - (2) - (2) - ------------- ------------ -------------- ------------- Net income (loss) $ (650) 553 (342) (439) ============= ============ ============== ============= Basic and diluted net income (loss) per share ($0.09) ($0.05) ============= ============= Weighted average number of common shares used in net income (loss) per share computation 7,599 575 (3) 8,174 ============= ============== =============
(1) The $2.7 million loan accrues interest each month the DFI stock price exceeds an average price of $2.80. The pro forma adjustments include $98,000 of imputed interest for this loan. In addition, Estimated interest expense of $40,000 for the $899,000 loan at 6% interest rate, $27,000 for the $700,000 line of credit at Prime plus 1% and $9,000 for the $300,000 line of credit at Prime is recorded as a pro forma adjustment. Prior to January 3, 2005, Summit was an S Corporation and did not record any income tax expense. Summit would have (2) recorded an estimated $211,000 of income tax expense if this transaction had occurred at the beginning of this period. This tax expense would have been offset by DFI's tax benefit. (3) 575,000 shares of DFI's common stock were issued in conjunction with the Summit acquisition (4) Record $168,000 amortization for the intrinsic value of the embedded convertible debt option. 4
DIGITAL FUSION, INC. UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2004 (in thousands, except footnotes) Condensed Historical Pro Forma --------------------- ---------------------------------- DFI Summit Adjustments Combined --------- -------- -------------- ------------- Assets Current assets: Cash and cash equivalents $ 58 421 (1,600) (1) (121) (5) 1,000 (3) Accounts receivable and unbilled accounts receivable, net 1,208 1,896 3,104 Other current assets 20 437 457 --------- -------- -------------- ------------- Total current assets 1,286 2,754 (600) 3,440 Property and equipment, net 185 128 313 Other Assets: Intangible assets 3,347 4,538 (2) 7,885 Other assets 13 13 --------- -------- -------------- ------------- Total other assets 3,360 - 4,538 7,898 --------- -------- -------------- ------------- Total Assets $ 4,831 2,882 3,938 11,651 ========= ======== ============== ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 1,544 447 54 (1) 2,045 Accrued salaries and wages 842 842 Current maturities of long-term debt, short-term notes payable and LOC 801 899 (1) 2,700 1,000 (3) Billings in excess of cost and estimated earnings 223 223 Deferred revenue 21 211 232 --------- -------- -------------- ------------- Total current liabilities 2,366 1,723 1,953 6,042 Long-term note, less current maturities 40 40 2,700 (1) (131) (1) Long-term convertible note (671) (4) 1,898 Pension obligation 295 295 --------- -------- -------------- ------------- Total liabilities 2,701 1,723 3,851 8,275 --------- -------- -------------- ------------- Stockholders' equity 2,130 1,159 (1,159) (2) 3,376 575 (1) 671 (4) --------- -------- -------------- ------------- Total stockholders' equity and liabilities $ 4,831 2,882 3,938 11,651 ========= ======== ============== =============
(1) Purchase price of the acquisition of Summit Value of common stock issued as consideration $ 575,000 Cash 1,600,000 Short-term note 899,000 Long-term convertible note 2,700,000 Discount on long-term convertible note for imputed interest (131,000) Acquisition costs 54,000 ------------ Total purchase price $ 5,697,000 ============ 5 The purchase agreement required the Company to issue 575,000 shares of DFI's common stock which was issued during January 2005. The 575,000 shares of common stock are valued based upon contemporaneous cash sales. (2) Allocation of acquisition costs: Net book value of Summit $ 1,159,000 Allocation to goodwill 4,538,000 ------------ $ 5,697,000 ============ The Company is in the process of evaluating the intangibles purchased, thus the purchase price allocation has not been finalized and is subject to change. (3) DFI borrowed $700,000 at Prime plus 1% and Summit borrowed $300,000 at Prime on lines of credit. These borrowings were used to fund part of this Summit acquisition. (4) The intrinsic value of the embedded beneficial conversion option of the $2.7 million convertible note is estimated at $671,000. (5) Subsequent to September 30, 2004, DFI received proceeds from the sale of its common stock which funded the remaining portion of this acquisition. 6 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1* Loan Agreement, note and security agreement and commercial security agreement, each dated March 10, 2005, among First Commercial Bank of Huntsville and the Company, for a $2,500,000 revolving line of credit. 10.2* Security and Subordination Agreement, dated January 3, 2005, by and among First Commercial Bank of Huntsville, the Company and Michael W. Wicks. 10.3* Stock Purchase Agreement, dated as of October 28, 2004, by and between the Company and Michael W. Wicks. 10.4* Convertible Promissory Note, dated January 3, 2005, by and between the Company and Michael W. Wicks. 10.5* Registration Rights Agreement, dated January 3, 2005, by and between the Company and Michael W. Wicks. 10.6* Escrow Agreement, dated October 28, 2004, by and among the Company, Michael W. Wicks and Synovus Trust Company. 10.7* Employment Agreement, dated January 3, 2005, by and between the Company and Michael W. Wicks. 10.8* Employment Agreement, dated January 3, 2005, by and between the Company and Steven L. Thornton. * Filed herewith. 7 EX-10.1 2 a4846993ex10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 FIRST COMMERCIAL BANK OF HUNTSVILLE LOAN AGREEMENT (Financial Covenants) Date: __3/10/2005______________ In consideration of the sum of ten dollars in hand paid to each of the undersigned (hereinafter referred to as "Obligor", whether one or more) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Obligor, and in order to induce First Commercial Bank of Huntsville (hereinafter referred to as "Bank") to extend to Digital Fusion, Inc. and Digital Fusion Solutions, Inc. (hereinafter cumulatively referred to as the "Borrower") and Digital Fusion, Inc., Digital Fusion Solutions, Inc., Summit Research Corporation, Roy E. Crippen, III and Gary S. Ryan (hereinafter cumulatively referred to as the "Guarantors") from time to time such extensions of credit, advances and forbearances as the Bank in its sole discretion may deem prudent and wise (all such indebtedness, obligations and liabilities of the Borrower to the Bank of every kind, character and description whatsoever, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, contracted or arising, joint or several, liquidated or un-liquidated, regardless of how they arise or by what agreement or instrument they may be evidenced or whether they are evidenced by any agreement or instrument, and whether incurred as maker, drawer, endorser, surety, guarantor or otherwise, including without limitation obligations of the Borrower purchased by the Bank, and obligations incurred in connection with the issuance of a letter of credit, and any and all extensions and renewals of all or any part of the same are herein collectively referred to as the "Liabilities"), the Obligor, the Borrower and the Bank agree as follows: DEFINITIONS For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Accounts" shall have that meaning defined in the Alabama Uniform Commercial Code. "Collateral" shall mean any property or assets of Borrower or Obligor or other security pledged or granted to Bank as security for the Liabilities. "Debt" shall mean all of Obligor's total liabilities less Subordinated Debt. "Loan Documents" shall mean any note, loan agreement (other than this Agreement) or other instrument, document or paper evidencing, securing, guaranteeing, or executed in connection with all or any part of the Liabilities. "Subordinated Debt" shall mean indebtedness of the Obligor described in and unconditionally subordinated to the Bank in any subordination agreement executed by a subordinate creditor and delivered to the Bank. "Tangible Net Worth" shall mean Obligor's net worth plus Subordinated Debt less (i) any and all loans and other advances to affiliates, subsidiaries, owners, parent, employees, officers, stockholders, directors or other related entities of Obligor; (ii) notes, notes receivable, accounts, accounts receivable, inter-company receivables, and other amounts owing from affiliates, subsidiaries, owners, parent, employees, officers, stockholders, directors or other related entities of Obligor; and (iii) any and all intangibles of Obligor. Accounting terms used in this Agreement, such as "accounts receivable,""current maturities of long term debt," "inventory," "net income," "net worth" and "total liabilities" shall have the meanings normally given them by, and shall be calculated, both as to amounts and classification of items, in accordance with, generally accepted accounting principles in the United States. Singular terms shall include the plural as well as the singular and vice versa. REPRESENTATIONS AND WARRANTIES Obligor represents and warrants to Bank, at all times while any Liabilities remain unsatisfied, as follows: (1) If Obligor is a corporation, partnership or limited liability company, Obligor is duly organized, validly existing, and in good standing under the laws of the jurisdiction in which Obligor was organized, and Obligor is duly qualified and in good standing (and will remain so qualified and in good standing) in every state in which it is or shall be doing business or in which the failure so to qualify and remain in good standing would or could have an adverse effect on its business or properties or Bank; (2) There are no actions, suits or proceedings pending or, to Obligor's best knowledge, threatened against or affecting Obligor or the Collateral that involve any of the transactions contemplated in this Agreement or the possibility of any judgment or liability that may result in a material adverse change in Obligor's operations or condition or the Collateral; (3) Obligor is not a party to any instrument, or subject to any restriction, that materially and adversely affects Obligor's operations or condition, and Obligor is not in default in any of the obligations contained in any instrument to which Obligor is a party that could have a material adverse effect upon Obligor's operations or condition; and (4) Obligor has full right, power and authority to enter into the Loan Documents to which it or (s)he is a party and to consummate the transactions contemplated thereby and has taken all necessary action to authorize the execution, delivery and performance of such Loan Documents and the documents contemplated to be executed and delivered thereby. COVENANTS --------- Obligor and Borrower covenant and agree with Bank, at all times while any Liabilities remain unsatisfied, as follows: 1. Obligor shall submit or cause to be submitted to Bank such financial and other information which Bank shall reasonably request regarding Borrower, the Collateral and Obligor when and as requested by Bank, including without limitation: (i) Obligor's and Borrower's monthly financial statements within forty-five (45) days after the close of each calendar month in each fiscal year including a balance sheet as of the close of such period and a fiscal year to date income statement in accordance with generally accepted accounting principles and attested to by an authorized officer of Obligor or Borrower, as the case may be; (ii) Obligor's and Borrower's audited fiscal year-end financial statements within one hundred twenty (120) days after the close of each fiscal year, including a balance sheet as of the close of such period, an income statement, and a reconciliation of stockholders' equity prepared by a certified public accountant acceptable to Bank in accordance with generally accepted accounting principles; (iii) annual personal financial statements of any guarantor of the Liabilities (as of December 31 of each year) within ninety (90) days of the close of each calendar year; and (iv) a borrowing base compliance certificate per the attached exhibit "A" along with an aging of accounts receivables within 15 days of month end (v) any other financial information as Bank may request from time to time, including but not limited to that information as may be required for Bank to determine Obligor's or Borrower's compliance with the terms of this Agreement. 2 2. Obligor shall (i) maintain insurance (written by insurance companies reasonably acceptable to Bank) in form, amount and substance reasonably acceptable to Bank, including, without limitation, worker's compensation, general liability insurance, property "all risk" insurance upon Obligor's property (in an amount at least equal to its full insurable value) and insurance on all facets of its businesses and all the Collateral; (ii) furnish to Bank, upon request, a statement of the insurance coverage. 3. Obligor does and shall comply with all laws, ordinances, rules and regulations of any governmental authority or entity governing or affecting Obligor, any of its property, the Collateral or any part thereof, and shall immediately notify Bank of any and all alleged or asserted violations of any such laws, ordinances or regulations. 4. Obligor shall not sell, transfer, lease, pledge, abandon, grant any lien on or security interest in, or otherwise encumber or dispose of any of its accounts receivable, including without limitation the Collateral or any interest therein, and Obligor shall not permit or suffer to exist any lien, security interest or other encumbrance on any of its accounts receivable. 5. Guarantors shall not guarantee, endorse or assume, either directly or indirectly, any indebtedness greater than $200,000 in aggregate of any other corporation, person, or entity without prior written consent of the bank. 6. Obligor will not incur, create, assume or permit to exist any debt of Obligor other than (a) existing debt reflected in the most recent balance sheet of Obligor delivered to Bank on or prior to the date hereof, (b) debt to the Bank, (c) trade payables and other current liabilities incurred or accrued by the Obligor in the ordinary course of business, (d) the extension or receipt of normal trade terms with respect to customers and suppliers, (e) any specific debt in connection with a special transaction for which advance approval is sought and obtained from the Bank, (f) unsecured debt to the owners of the Obligor that is payable on terms as favorable to the Obligor as those that would be available to the Obligor in arms-length commercial transactions with commercial bank lenders, (g) leases of equipment and real estate incurred in the ordinary course of the Obligor's business, and (h) debt incurred solely for the purchase of fixed assets acquired or held by Obligor in the ordinary course of business. 7. Obligor shall permit Bank or any persons duly designated by Bank to call at the places of business of Obligor at any reasonable time, and without hindrance or delay to visit, inspect, audit and check any of Obligor's properties, books, records, journals, orders, receipts and any correspondence or other data relating to Obligor's business or any other transactions between or among the parties hereto, and to make copies thereof and take extracts there from, and to discuss Obligor's financial affairs with Obligor's financial officers and accountants. 8. Obligor shall comply with all applicable present and future local, state and federal laws, including, without limitation, environmental laws and regulations. 9. Obligor shall maintain its principal transaction account with Bank. 10. In the event Obligor has a revolving loan or line of credit with Bank, the sum of eighty percent (80%) of its eligible accounts receivable as determined by the bank (excluding any accounts receivable that are aged 120 days or greater) will at all times exceed the sum of the outstanding principal balance of said revolving loan or line of credit. Furthermore, advances against eligible accounts receivable due to Summit Research Corporation will be limited to $2,000,000.00 (Two Million and no/100 U.S. Dollars). In the event of default Obligor agrees upon Bank request to cooperate in the filing and perfection of assignment of claims documents on all Federal Government contracts. 3 EVENTS OF DEFAULT; ACCELERATION. -------------------------------- Any or all of the Liabilities shall be, at the option of Bank and notwithstanding any time or credit allowed by any instrument evidencing any of the Liabilities or under any of the Loan Documents, immediately due and payable without notice or demand, and the obligation of Bank to make advances under any revolving line of credit, or other loan shall immediately cease and terminate upon the occurrence of any of the following events of default (singularly an "Event of Default"): (1) default in the payment or performance, when due or payable, of any of the Liabilities, or of any liability or obligation (whether now or hereafter existing, arising or incurred, direct or indirect, conditional or unconditional) of any endorser, guarantor, or surety for any of the Liabilities (severally a "Promisor"); (2) failure by Obligor, Borrower or any other person or entity, as applicable, to (a) pay or perform any act or obligation imposed hereby or by any of the other Loan Documents, or (b) comply with any of the terms, conditions, covenants or requirements described herein or contained or referenced in one or more of the Loan Documents; (3) failure of Obligor, Borrower or any other person or entity, as applicable, to pay when due (a) any tax (subject to the right of Obligor to contest same as provided in paragraph 17 hereof), or (b) any premium on (i) any insurance policy assigned to Bank, or (ii) any insurance covering any Collateral; (4) if any warranty or representation contained herein shall prove false or misleading with respect to a material fact or if Obligor or Borrower or any Promissory made or makes any other misrepresentation to Bank for the purpose of obtaining credit or any extension of credit; (5) failure of Obligor, Borrower or any Promisor to furnish financial information or to permit the inspection of the books or records or Collateral of Obligor, Borrower or of any Promisor; (6) the loss, theft, damage, sale, destruction or encumbrance of any uninsured material portion of the Collateral, or the sale or encumbrance or the issuance of any execution or the making of any levy, seizure or attachment thereof or thereon; (7) the insolvency, dissolution, liquidation, suspension of business or death of the Obligor or the Borrower or of any Promisor, or of any of the Obligor's or the Borrower's or such Promissor's principal officers if a corporation, or of any of the Obligor's or the Borrower's general partners if a partnership; (8) the Obligor or the Borrower or any Promisor shall (i) fail or admit in writing the inability of the Obligor or the Borrower or any Promisor to pay the Obligor's or the Borrower's or such Promisor's debts generally as they become due, (ii) make a general assignment for the benefit of creditors or have an order for relief entered against the Obligor or the Borrower or any Promisor in any proceeding under the Federal bankruptcy code, or (iii) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against the Obligor or the Borrower or such Promisor in any proceeding under any such law, or if corporate or partnership action should be taken by the Obligor or the Borrower or any Promisor for the purpose of effecting any of the foregoing; (9) the appointment of a receiver trustee, liquidator or custodian of the Obligor or the Borrower or any Promisor or of any of their respective properties or assets; (10) the filing of a petition without the application, approval or consent of the Obligor or the Borrower or any Promisor in any court of competent jurisdiction, seeking the bankruptcy or reorganization of the Obligor or the Borrower or of any Promisor or of all or a substantial part of their respective properties or assets, or seeking an arrangement with the creditors of any of them, and such petition shall not be dismissed within 30 days after the filing thereof; (11) any change in the ownership nature, management or control of Borrower or Obligor without the prior written consent of Bank; (12) failure of Obligor or Borrower or any other person or entity to maintain any insurance required hereunder and/or assigned or pledged to Bank in connection with any of the Loan Documents; (13) fraud or misrepresentation by or on behalf of Obligor or Borrower in Obligor's or Borrower's transactions with Bank; (14) violation of or failure to abide by any covenant, term or provision of this Agreement or any of the Loan Documents; or the termination, cancellation or revocation of any Loan Document without Bank's consent or the determination that any of the Loan Documents is void, voidable or unenforceable; (15) any default or event of default under any of the Loan Documents; or (16) any default or event of default of Obligor or Borrower under any other loan or indebtedness owing by Obligor or Borrower to Bank, whether or not arising under the Loan Documents. Notwithstanding the foregoing, Obligor or Borrower shall have sixty (60) calendar days to cure any Event of Default without penalty, termination or payment demand of this Loan Agreement. 4 Digital Fusion, Inc., Obligor Digital Fusion, Inc., Borrower By: /s/ Roy E. Crippen, III By: /s/ Gary S. Ryan ----------------------------------- ------------------------------- Its: CEO Its: President ----------------------------------- --------------------------------- Digital Fusion Solutions, Inc., Borrower Digital Fusion Solutions, Inc., Obligor By: /s/ Roy E. Crippen, III By: /s/ Gary S. Ryan ----------------------------------- ------------------------------- Its: President Its: President ----------------------------------- --------------------------------- Summit Research Corporation, Obligor Summit Research Corporation, Guarantor By: /s/ Roy E. Crippen, III -------------------------------------------- Its: President -------------------------------------------- /s/ Roy E. Crippen, III - -------------------------------------------------- Roy E. Crippen, III, Guarantor /s/ Gary S. Ryan - -------------------------------------------------- Gary S. Ryan, Guarantor First Commercial Bank of Huntsville, Bank By: /s/ Andy Kattos -------------------------------------------- Its: Senior Vice President --------------------- 5 - ---------------------------------------------------------------------------------------------------- Loan Number 69403234 / 50 DIGITAL FUSION, INC. FIRST COMMERCIAL BANK Date 03/10/2005 DIGITAL FUSION SOLUTIONS, INC. OF HUNTSVILLE Maturity Date 04/10/2006 4940 CORPORATE DRIVE NW 301 WASHINGTON STREET Loan Amount $ 2,500,000.00 SUITE A HUNTSVILLE, AL 35801 HUNTSVILLE, AL 35808 Fed. Tax ID 13-3817344 BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS "I" includes each borrower above, "You" means the lender, its successors jointly and severally. and assigns. - ----------------------------------------------------------------------------------------------------
For value received, I promise to pay to you, or your order, at your address above the PRINCIPAL sum of **TWO MILLION FIVE HUNDRED THOUSAND DOLLARS AND ZERO CENTS** Dollars $ 2,500,000.00 |_| Single Advance: I will receive all of this principal sum on ___________. No additional advances are contemplated under this note. |X| Multiple Advances: The principal sum shown above is the maximum amount of principal I can borrow under this note. On March 10, 2005, I will receive the amount of $696,600.00 and future principal advances are contemplated. Conditions: The conditions for future advances are AS DESCRIBED IN LOAN AGREEMENT DATE 03/10/2005 --------------------------------------------------------------------------- --------------------------------------------------------------------------- |X| Open End Credit: You and I agree that I may borrow under this Note, prepay this Note in whole or in part, and borrow again under this Note, so long as the aggregate unpaid principal amount owed under this Note at any time does not exceed the amount of the principal sum set forth above. My right to borrow is subject to all other conditions of this Note expires on April 10, 2006. |_| Closed End Credit: You and I agree that I may borrow in aggregate an amount not to exceed the principal sum shown above. Amounts I repay under this Note may not be re-borrowed later. My right to borrow is subject to all other conditions and expires on _________________. |X| INTEREST: I agree to pay interest on the outstanding principal balance from March 10, 2005 at the rate of 5.500000% per year until the index rate changes . Variable Rate: This rate may then change as stated below. |X| Index rate: The future rate will be 0.000% ABOVE the following index rate:_________________ LENDER'S PRIME, WHICH IS THE BASE RATE USED BY LENDER TO SET INTEREST RATES AT WHICH LOANS ARE MADE TO VARIOUS CUSTOMERS. LOANS MAY BE MADE AT, ABOVE OR BELOW SAID PRIME RATE. |_| No Index: The future rate will not be subject to any internal or external index. It will be entirely in your control. |X| Frequency and Timing: The rate on this note may change as often as DAILY . A change in the interest rate will take effect WHEN THE INDEX RATE CHANGES . |X| Limitations: During the term of this loan, the applicable .annual interest rate will not be more than ________ % or less than 5.00% The rate may not change more than __________________% each _________________. Effect of Variable Rate: A change in the Interest rate will have the following effect on the payments: |X| The amount of each scheduled payment will change. |_| The amount of the final payment will change. --------------------------------------------------------------- ACCRUAL METHOD: Interest will be calculated on an ACTUAL # DAYS/360 - DAY YEAR basis. POST MATURITY RATE: I agree to pay Interest on the unpaid balance of this note owing after maturity, and until paid in full, as stated below: |X| on the same fixed or variable rate basis in effect before maturity (as indicated above). |_| at a rate equal to --------------------------------------------------- |X| LATE CHARGE: I agree to pay a late charge on the portion of any payment not made within 10 days after it is due equal to 5% OF THE UNPAID AMOUNT WITH A MINIMUM OF $25.00 . |X| ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which |_| are |X| are not included in the principal amount above: $2500.00 BANK ORIGINATION; $250.00 BANK PROCESSING, $55.00 UCC FILING PAYMENTS: I agree to pay this note as follows: |X| Interest: l agree to pay accrued Interest MONTHLY Beginning April 10, 2005 ---------------------------------- |X| Principal: I agree to pay the principal April 10, 2006 ------------------------------------ |_| Installments: I agree to pay this note in ________ payments. The first payment of $_________ will be due ___________________ . A payment of $ _____________will be due _______ thereafter. The final payment of the entire unpaid balance of principal and interest will be due ______. PURPOSE: The purpose of this loan is WORKING CAPITAL ADDITIONAL TERMS: THIS LOAN IS DUE ON DEMAND, BUT IF NO DEMAND IS MADE, THEN ON 06/15/2005. THIS LOAN IS ALSO SECURED BY BUT NOT LIIMITED TO THE FOLLOWING: LOAN AGREEMENT DATED 03/10/2005; SUBORDINATION AGREEMENT DATED 06/30/2004; SECURITY AND SUBORDINATION AGREMENT DATED 01/03/2005; COMMERCIAL SECURITY AGREEMENT DATED 03/10/2005. SECURITY AGREEMENT SECURITY INTEREST: I grant you a security interest in all of the Property described below that I now own and that I may own in the future including, but not limited to, all parts, accessories, repairs, improvements, and accessions to the Property, wherever the Property is or may be located, and all cash and non-cash proceeds and products from the Property, and all supporting obligations that relate to or arise out of any of the Property (including things In action) described below, all documents that now or hereafter evidence any of the Property described below or the right to receive, hold, or dispose of any of that Property. |_| Inventory: All Inventory, whether now owned or hereafter acquired by Debtor, Including all goods, other than farm, which now or hereafter: (a) are leased by Debtor as lessor; (b) are held by Debtor for sale or lease or to be furnished under a contract of service; (c) are furnished by Debtor under a contract of service; or (d) consist of raw materials, work in process, or materials used or consumed in Debtor's business. |_| Equipment: All equipment, whether now owned or hereafter acquired by Debtor, Including 811 goods now or hereafter owned by Debtor other than inventory, farm products, and consumer goods, and Including all machinery, motor vehicles, furniture, trade or business fixtures, manufacturing equipment, mobile equipment, farm machinery and equipment, shop equipment, office equipment, record-keeping equipment, parts and tools, computer and printing equipment, and all goods which are, or are to become, fixtures. All equipment described in any list or schedule which Debtor gives to Secured Party is also included in the Property, but delivery of such a list is not necessary for the attachment of Secured Party's security interest in Debtor's equipment as described above, and Secured Party's security interest is not limited to the Property described in any such list or schedule. |_| Farm Products: All farm products, whether now owned or hereafter acquired by Debtor, including all goods, other than standing timber, with respect to which Debtor Is engaged in raising, cultivating, propagating, fattening, grazing or any other farming, livestock, or aqua cultural operation and which are: (a) crops grown, growing, or to be grown, including: (i) crops produced on trees, vines, and/or bushes; and (ii) aquatic goods produced in aquaculture operations; (b) livestock born or unborn, Including aquatic goods produced in acquacultural operations; (c) feed, seed, fertilizer, medicines, or other supplies used or produced in Debtor's farming operation: or (d) products of crops or livestock in their unmanufactured states. |X| Accounts: All accounts of debtor, whether now owned or existing or hereafter acquired or arising, including all rights of Debtor to payment of a monetary obligation, whether or not earned by performance, and whether originally owed to Debtor or acquired by Debtor after the obligation came into existence: (a) for property that has been or is to be sold, leased, licensed, asslgned, or otherwise disposed of: (b) for services rendered or to be rendered; (c) for a policy of insurance issued or to be issued; (d) for a secondary obligation incurred or to be incurred: (e) for energy provided or to be provided; (f) for the use or hire of a vessel under a charter or other contract; (g} arising out of the use of a credit or charge card or information contained on or for use with the card; (h) as winnings in a lottery or other game of chance operated or sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State; and (i) arising out of an interest in or claim under a policy or policies of Insurance for healthcare goods or services provided. |_| Instruments (Including Promissory Notes), Documents, Chattel Paper (including Electronic Chattel Paper), Letter-of-Credit Rights, and Other Rights to Payment: All of Debtor's right. title, and interest, whether now owned or existing or hereafter arising or acquired, in and to all instruments, documents, chattel paper, letter-of-credit rights, and other rights to payment. Including: (a) all negotiable instruments, including promissory notes and any other writings that evidence a right to payment of a monetary obligation and are not themselves a security agreement or lease, and that are of a type that in ordinary course of business are transferred by delivery with any necessary endorsement or assignment, but not including investment property, letters of credit, or writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card; (b) all documents of title and all receipts of the type described in Section 7-201(2) of the Uniform Commercial Code; (c) all chattel paper, including any record or records that evidence both a monetary obligation and a security interest In specific goods, a security interest in specific goods and software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods (but not including charters or other contracts involving the use or hire of a vessel or records that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card), and including all chattel paper evidenced by a record or records consisting of information stored in an electronic medium; and (d) all letters of credit and letter-of-credit rights, including all rights of Debtor to payment or performance under a letter-of-credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. |_| General Intangibles: All general intangibles, whether now owned or hereafter acquired by Debtor, including any personal property, things in action, payment intangibles, tax refunds, applications for patents, patents, copyrights, trademarks, trade names, trade secrets, service marks. Goodwill, customer lists, permits and franchises, licenses, software, the right to use Debtor's name and likeness, and all property and rights described under the heading "Government Payments and Programs" below (which description is incorporated herein by this reference), but not Including accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money. or oil, gas, or other minerals before extraction (as those terms are defined or used in Article 9 of the Uniform Commercial Code). |_| Deposit Accounts: All deposit accounts, whether now owned or hereafter acquired by Debtor, including all demand, time, savings, passbook., or similar accounts maintained with a bank, or other financial institution, but not including investment property or accounts evidenced by an instrument. |_|Investment Property: All of Debtor's investment property, whether now owned or hereafter acquired, including all securities, whether certificated or uncertificated, securities entitlements, securities accounts, commodity contracts, and commodity accounts. |_| Commercial Tort Claims: All rights of Debtor now existing or hereafter arising in that certain tort claim more particularly described as follows (provide description of tort claim): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- |_|Government Payments and Programs: All payments, accounts, general intangibles, or other benefits (including, but not limited to, payments in and conservation reserve payments) in which Debtor now has and in the future may have any rights or interest and which arise under or as a result of any pre-existing, current or future federal or state governmental program (including, but not limited to, all programs administered by the Commodity Credit Corporation and ASCS). |X|Specific Property: All of Debtor's right, title and interest, whether now owned or hereafter acquired, in the following property (all without limiting the generality of the applicable descriptions set forth above: ALL INVOICES, ACCOUNTS RECEIVABLE, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS THEREBY AND ALL PROCEEDS THEREOF OF THE DEBTOR'S BUSINESS WHETHER NOW OR HEREAFTER EXISTING OR ACQUIRED |_| Standing Timber: All of Debtor's right, title and interest, whether now owned or hereafter acquired, in standing timber located on the real property described below, and all cutting rights with respect thereto: |_| As Extracted Collateral: All of Debtor's rights, title, and interest, whether now owned or hereafter acquired, in all oil, gas, and other minerals extracted from the real property described below, and all accounts arising out of the safe at the wellhead, mine head, or mine of oil, gas, or other minerals from such real property. |_| Where the property Includes goods that are or are to become fixtures, or standing timber, or as-extracted collateral: The legal description of the real property on which such Property is or will be located is (provide legal description of the or other sufficient description of real property: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The record owner of the real property, (if other than Debtor) is (provide name of record owner of real property, (other than Debtor) If this agreement covers timber to be cut, minerals (including oil and gas), fixtures or crops growing or to be grown, the legal description is: ================================================================================ ? If checked, the file this agreement on the real estate records. Record owner (if not me) ___________ ADDITIONAL TERMS OF THE SECURITY AGREEMENT GENERALLY - This agreement secures this note and any other debt I have with you, now or later. However, it will not secure other debts if you fail this security agreement or if you fail to give any required notice of the right of rescission. If property described in this agreement is located in another state, this agreement may also, in some circumstances, be governed by the law of the state in which the Property is located. All locations referenced to "this note" or "this agreement" or "this loan" shall mean this Universal Note and Security Agreement. OWNERSHIP AND DUTIES TOWARD PROPERTY: I represent that I own all of the Property, or to the extent, this is a purchase money security interest, I will acquire ownership of the Property with the proceeds of the loan. I will defend it against any other claim. Your claim to the Property is ahead of the claims of any other creditor. I agree to do whatever you require to protect the loan your security interest and to keep your claim in the Property ahead of the claims of other creditors. I will not do anything to harm your position. I will keep books, records, and accounts about the Property and my business in general. I will let you examine these records at any reasonable time. I will prepare any report or accounting you request, which deals with the Property. I will keep the Property in my possession and will keep it in good repair and use it only for the purpose(s) described on page 1 of this written permission. I represent that I am the original owner of the Property and, if I am not, that I have provided you with a list of prior owners of the Property. I will keep the Property at my address listed on page 1 of this agreement, unless we agree I may keep it at another location. If the Property is to be used in another state, I will give you a list of those states. I will not try to sell the Property unless it is inventory or I receive your written permission to do so. If I sell the Property I will have the payment made payable to the order of you and me. I will pay all taxes and charges on the Property as they become due. You have the right of reasonable access in order to inspect the Property. I will immediately inform you of any loss or damage to the Property. If I fail to perform any of my duties under this security agreement, or any mortgage, deed of trust, lien or other security interest, you may without notice to me perform the duties or cause them to be performed. Your right to perform for me shall not create an obligation to perform and your failure to perform will not preclude you from exercising any of your other rights under the law or this security agreement. PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the extent of a purchase money security interest arising under this security agreement: (a) payments on any non-purchase money loan also secured by this agreement will not be deemed to apply to the Purchase Money Loan, and (b) payments on the Purchase Money Loan will be deemed to apply first to the non-purchase money portion of the loan, if any, and then to the purchase money obligations in the order in which the items of collateral were acquired or if acquired at the same time, in the order selected by you. No security interest will be terminated by application of this formula. "Purchase Money Loan" means any loan the proceeds of which, in whole or in part, are used to acquire any collateral securing the loan and all extensions, renewals, consolidations and refinancing of such loan. PAYMENTS BY LENDER - You are authorized to pay, on my behalf, charges I am or may become obligated to pay to preserve or protect the secured property (such as property insurance premiums). You may treat those payments as advances and add them to the unpaid principal under the note secured by this agreement or you may demand immediate payment of the amount advanced. INSURANCE - I agree to buy insurance on the Property against the risks and for the amounts you require and to furnish you continuing proof of coverage. I will have the insurance company name you as loss payee on any such policy. You may require added security if you agree that insurance proceeds may be used to repair or replace the Property. I will buy insurance from a firm licensed to do business in the state where the property is located. The firm will be reasonably acceptable to you. The insurance will remain in force until the Property is released from this agreement. If I fail to buy or maintain the insurance (or fail to name you as loss payee) you may purchase it yourself. WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will not settle any account for less than its full value without your written permission. I will collect all accounts until you tell me otherwise. I will keep in trust for you the proceeds from all the accounts and any goods which are returned to me or which I take back. I will not mix them with any other property of mine. I will deliver them to you at your request. If you ask me to pay you the full price on any returned items or items retaken by myself, I will do so. If this agreement covers inventory, I will not dispose of it except in my ordinary course of business at the fair market value for the Property, or at a minimum price established between you and me. If this agreement covers farm products I will provide you, at your request, a written list of the buyers, commission merchants, or selling agents to or through whom I may sell my farm products. In addition to those parties named on this written list, I authorize you to notify at your sole discretion any additional parties regarding your security interest in my farm products. I remain subject to all applicable penalties for selling my farm products in violation of my agreement with you and the Food Security Act. In this paragraph the terms farm products, buyers, commission merchants and selling agents have the meanings given to the in the Federal Food Security Act of 1985. REMEDIES - I will be in default on this security agreement if I am in default on any note this agreement secures or if I fail to keep any promise contained in the terms of this agreement. If I default, you have all of the rights and remedies provided in the note and under the Uniform Commercial Code. You may required me to make the secured property available to you at a place which is reasonably convenient. You may take possession of the secured property and sell it as provided by law. The proceeds will be applied first to your expenses and then to the debt. I agree that 10 days written notice sent to my last known address by first class mail will be reasonable notice under the Uniform Commercial Code. My current address is on page 1. I agree to inform you in writing of any change of my address. You may demand immediate payment of the debt(s) if the debtor is not a natural person and without your prior written consent; (1) a beneficial interest in the debtor is sold or transferred, or (2) there is a change in either the identity or number of members of a partnership, or (3) there is a change in ownership of more than 25 percent of the voting stock of a corporation. FILING - A carbon, photographic or other reproduction of this security agreement or the financing statement covering the Property described in this agreement may be used as a financing statement where allowed by law. Where permitted by laws, you may file a financing statement which does not contain my signature, covering the Property secured by this agreement. ADDITIONAL TERMS OF THE NOTE DEFINITIONS - As used on pages 1, 2, and 3, "terms" means the terms that apply to this load. "I", "me", or "my" means each Borrower who signs this note and each other person or legal entity (including guarantors, endorsers, and sureties) who agrees to pay this note (together referred to as "us"). "You" or "your" means the Lender and its successors and assigns. APPLICABLE LAW - The laws of the United States and, to the extent not inconsistent therewith, the laws of the state of Alabama. Any term of this agreement, which is contrary to applicable laws, will not be effective, unless the law permits you and me to agree to such a variation. If any provision of this agreement cannot be enforced according to its terms, this fact will not affect the enforceability of the remainder of this agreement. No modification of this note or any agreement securing this note is effective unless the modification is in writing and signed by you and me. Time is of the essence in this agreement. PAYMENTS - Each payment of principal and interest I make on this note will first reduce the amount I owe you for charges, which are neither interest nor principal. The remainder of each payment will then reduce accrued unpaid interest, and then unpaid principal. If you and I agree to a different application of payments, we will describe our agreement on this note. I may prepay a part of, or the entire balance of this loan without penalty, unless we specify to the contrary on this note. Any partial prepayment will not excuse or reduce any later scheduled payment until this note is paid in full (unless, when I make the prepayment, you and I agree in writing to the contrary). INTEREST - Interest accrues on the principal remaining unpaid from time to time, until paid in full. If I receive the principal in more than one advance, each advance will start to earn interest only when I receive the advance. The interest rate in effect on this note at any given time will apply to the entire principal sum outstanding at that time. Notwithstanding anything to the contrary, I don not agree to pay and you do not intend to charge any rate of interest that is higher than the maximum rate of interest you could charge under applicable law for the extension of credit that is agreed to in this note (either before or after maturity). If any notice of interest accrual is sent and is in error, we mutually agree to correct it, and if you actually collect more interest than allowed by law and this agreement, you agree to refund it to me. INDEX RATE - The index will serve only as a device for setting the interest rate on this note. You do not guarantee by selecting this index or the margin, that the interest rate on this note will be the same rate you charge on any other loans or class of loans you make to me or other borrowers. POST MATURITY DATE - For purposes of deciding when the "Post Maturity Rate" (shown on page 1) applies, the term "maturity" means the date of the last scheduled payment indicated on page 1 of this note or the date you accelerate payment on the note, whichever is earlier. SINGLE ADVANCE LOAND - If this is a single advance loan, you and I expect that you will make only one advance of principal. However, you may add other amounts to the principal if you make any payments described in the "PAYMENTS BY LENDER" paragraph herein. MULTIPLE ADVANCE LOANS - If this is a multiple advance loan, you and I expect that you will make more than one advance of principal. If this is closed end credit, repaying a part of the principal will not entitle me to additional credit. SET-OFF - I agree that you may set off any amount due and payable under this note against any right I have to receive money from you. "Right to receive money from you" means: (1) any deposit account balance I have with you; (2) any money owed to me on an item presented to you or in your possession for collection or exchange; and (3) any repurchase agreement or other nondeposit obligation. "Any amount due and payable under this note" means the total amount of which you are entitled to demand payment under the terms of this note at the time you set off. This total includes any balance the due date for which you properly accelerate under this note. If my right to receive money from you is also owned by someone who has not agreed to pay this note, your right of set-off will apply to my interest in the obligation and to any other amounts I could withdraw on my sole request or endorsement. Your right of set-off does not apply to an account or other obligation where my rights are only as a representative. It also does not apply to any Individual Retirement Account or other tax-deferred retirement account. You will not be liable for the dishonor of any check when the dishonor occurs because you set off this debt against any of my accounts. I agree to hold you harmless from any such claims arising as a result of your exercise of your right to set-off. DEFAULT - I will be in default if any one or more of the following occur: (1) I fail to make a payment on time or in the amount due; (2) I fail to keep the Property insured, if required; (3) I fail to pay, r keep any promise, on any debt or agreement I have with you; (4) any other creditor of mine attempts to collect any debt I owe him through court proceedings; (5) I die, am declared incompetent, make an assignment for the benefit of creditors, or become insolvent (either because my liabilities exceed my assets or I am unable to pay my debts as they become due); (6) I make any written statement or provide any financial information that is untrue or inaccurate at the time it was provided; (7) I do or fail to do something which causes you to believe you will have difficulty collecting the amount I owe you; (8) any collateral securing this note is used in a manner or for a purpose which threatens confiscation by a legal authority; (9) I change my name or assume an additional name without first notifying you before making such a change; (10) I fail to plant, cultivate and harvest crops in due season; (11) any loan proceeds are used for a purpose that will contribute to excessive erosion of highly erodible land or the conversion of wetlands to produce and agricultural commodity, as further explained 7 C.F.R. Part 1940, Subpart G, Exhibit M. REMEDIES - If I am in default on this note you have, but are not limited to, the following the following remedies: (1) You may demand immediate payment of all I owe you under this note (principal, accrued unpaid interest and other accrued unpaid charges). (2) You may set off this debt against any right I have to the payment of money from you, subject to the terms of the "SET-OFF" paragraph herein. (3) You may demand security, additional security, or additional parties to be obligated to pay this note as a condition for not using any other remedy. (4) You may refuse to make advances to me or allow purchases on credit by me. (5) You may use any remedy you have under state or federal law. (6) You may make use of any remedy given to you in any agreement securing this note. By selecting any one or more of these remedies you do not give up your right to use later any other remedy. By waiving your right to declare an event to be a default, you do not waive your right to consider later the event a default if it continues or happens again. COLLECTION COSTS AND ATTORNEYS' FEES - I agree to pay you all reasonable costs you incur to collect this debt or realize on any security. This includes, if the amount financed is more than $300.00 your reasonable attorneys' fees of up to 15% of the unpaid debt if you refer collection of the note to an attorney who is not your salaried employee. This provision also shall apply if I file a petition or any other claim for relief under any bankruptcy rule or laws of the United States, or if such petition or other claim for relief is filed against me by another. WAIVER - I give up my rights to required you to do certain things. I will not require you to: (1) demand payment of amounts due (presentment) (2) obtain official certification of nonpayment (protest); or (3) give notice that amounts due have not been paid (notice of dishonor). I waive any defenses I have based on surety ship or impairment of collateral to the extent permitted by law, I also waive all personal property exemptions in the property securing this loan. OBLIGATIONS INDEPENDENT - I understand that I must pay this note even if someone else has also agreed to pay it (by, for example, signing this form or a separate guarantee or endorsement). You may sue me alone, or anyone else who is obligated on this note, or any number of us together, to collect this note. You may without notice release any party to this agreement without releasing any other party. If you give up any of your rights, with or without notice, it will not affect my duty to pay this note. Any extension of new credit to any of us, or renewal of this note by all or less than all of us will not release me from my duty to pay it. (Of course, you are entitled to only one payment in full.) I agree that you may at your option extend this note or the debt represented by this note, or any portion of the note or debt, from time to time without limit or notice and for any term without affecting my liability for payment of the note. I will not assign my obligation under this agreement without your prior written approval. CREDIT INFORMATION - I agree and authorize you to obtain credit information about me from time to time (for example, by requesting a credit report) and to report to others your credit experience with me (such as a credit reporting agency). I agree to provide you, upon request, any financial statement or information you may deem necessary. I warrant that the financial statements and information I provide to you are or will be accurate, correct and complete. SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGES 1, 2, AND 3). I have received a copy on today's date. CAUTION - IT IS IMPORTANT THAT YOU THOROUGHLY READ THE CONTRACT BEFORE YOU SIGN IT. DIGITAL FUSION, INC. DIGITAL FUSION SOLUTIONS, INC. BY: /s/ Gary S. Ryan BY: /s/ Roy E. Crippen, III --------------------------- ---------------------------- GARY S. RYAN PRESIDENT ROY E. CRIPPEN, III PRESIDENT BY: /s/ Roy E. Crippen, III ---------------------------- ROY E. CRIPPEN, III CEO SIGNATURE FOR LENDER ------------------------------ - -------------------------------------------------------------------------------- DEBTOR NAME AND ADDRESS SECURED PARTY NAME AND ADDRESS SUMMIT RESEARCH CORPORATION FIRST COMMERCIAL BANK OF HUNTSVILLE 3 01 WASHINGTON STREET 4940 CORPORATE DR NW SUITE A HUNTSVILLE, AL 358 01 HUNTSVILLE, AL 35805-6226 Taxpayer I.D. # 63-1285794 Type: [ ] individual [ ] partnership |X| corporation [ ]____________ State of organization/registration (if applicable) Alabama [ ] If checked, refer to addendum for additional debtors and signatures. - -------------------------------------------------------------------------------- COMMERCIAL SECURITY AGREEMENT The date of this Commercial Security Agreement (Agreement) is March 10, 2005 . SECURED DEBTS. This Agreement will secure all sums advanced by Secured Party under the terms of this Agreement and the payment and performance of the following described Secured Debts that (check one) [ ] Debtor |X| DIGITAL FUSION, INC AND DIGITAL FUSION SOLUTIONS, INC. (Borrower) owes to Secured Party: [ ] Specific Debts. The following debts and all extensions, renewals, refinancings, modifications, and replacements (describe): [ ] All Debts. All present and future debts, even if this Agreement is not referenced, the debts are also secured by other collateral, or the future debt is unrelated to or of a different type than the current debt. Nothing in this Agreement is a commitment to make future loans or advances. SECURITY INTEREST. To secure the payment and performance of the Secured Debts, Debtor gives Secured Party a security interest in all of the Property described in this Agreement that Debtor owns or has sufficient rights in which to transfer an interest, now or in the future, wherever the Property is or will be located, and all proceeds and products of the Property. "Property" includes all parts, accessories, repairs, replacements, improvements, and accessions to the Property; any original evidence of title or ownership; and all obligations that support the payment or performance of the Property. "Proceeds" includes anything acquired upon the sale, lease, license, exchange, or other disposition of the Property; any rights and claims arising from the Property; and any collections and distributions on account of the Property. This Agreement remains in effect until terminated in writing, even if the Secured Debts are paid and Secured Party is no longer obligated to advance funds to Debtor or Borrower. PROPERTY DESCRIPTION. The Property is described as follows: [ ] Inventory: All inventory which Debtor holds for ultimate sale or lease, or which has been or will be supplied under contracts of service, or which are raw materials, work in process, or materials used or consumed in Debtor's business. [ ] Equipment: All equipment including, but not limited to, all machinery, vehicles, furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop equipment, office and recordkeeping equipment, and parts and tools. All equipment described in a list or schedule which Debtor gives to Secured Party will also be included in the secured property, but such a list is not necessary for a valid security interest in Debtor's equipment. [ ] Farm Products: All farm products including, but not limited to: (a) all poultry and livestock and their young, along with their products, produce and replacements; (b) all crops, annual or perennial, and all products of the crops; (c) all feed, seed, fertilizer, medicines, and other supplies used or produced in Debtor's farming operations; and (d) all aquatic goods produced in aquacultural operations. |X| Accounts: All rights Debtor has now and may have in the future to the payment of money including, but not limited to: (a) payment for goods and other property sold or leased or for services rendered, whether or not Debtor has earned such payment by performance; (b) rights to payment arising out of all present and future debt instruments, chattel paper and loans and obligations receivable; (c) all rights Debtor has under any policy of insurance which is a right to payment of a monetary obligation for health care goods or services provided (e.g., health care insurance receivables); and (d) credit card receivables and license fees. The above include any supporting obligations, rights and interests (including all liens and security interests) which Debtor may have by law or agreement against any account debtor or obligor of Debtor. [ ] Instruments (including Promissory Notes), Documents, Chattel Paper (including electronic chattel paper), Letters of Credit Rights, and Other Rights to Payment: Any rights, and interests, (including all liens and security interests) which Debtor may have by law or agreements against any account debtor or obligor of Debtor. [ ] General Intangibles: All general intangibles including, but not limited to, payment intangibles, tax refunds, applications for patents, patents, copyrights, trademarks, trade secrets, good will, trade names, customer lists, permits and franchises, and the right to use Debtor's name. [ ] Deposit Accounts: All rights Debtor has now and may have in the future to any demand, time, savings, passbook or similar account maintained at any financial institution. [ ] Investment Property: All rights Debtor has now and may have in the future to any certificated or uncertificated security, security entitlement, securities account, commodity contract, commodity account or financial asset. [ ] Software: All rights Debtor has and may have in the future to any computer program and supporting information provided in connection with the program. [ ] Commercial Tort Claims: All rights Debtor has now and may have in the future arising out of that certain tort claim more particularly described as follows (Provide description of tort claim)________________ [ ] Government Payments and Programs: All payments, accounts, general intangibles, or other benefits (including, but not limited to, payments in kind, deficiency payments, letters of entitlement, warehouse receipts, storage payments, emergency assistance payments, diversion payments, and conservation reserve payments) in which Debtor now has and in the future may have any rights or interests and which arise under or as a result of any preexisting, current or future federal or state governmental program (including, but not limited to, all programs administered by the Commodity Credit Corporation and ASCS). [ ] The Property includes, but is not limited by, the following: ALL INVOICES, ACCOUNTS RECEIVABLE, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS THEREBY AND ALL PROCEEDS THEREOF OF THE DEBTOR'S BUSINESS WHETHER NOW OR HEREAFTER EXISTING OR ACQUIRED. If this agreement covers timber to be cut, minerals (including oil and gas), fixtures or crops growing or to be grown, the legal description is: USE OF PROPERTY. The Property will be used for [ ] personal [ ] business [ ] agricultural [ ] _______________________ purposes. SIGNATURES, Debtor agrees to the terms on pages 1 and 2 of this Agreement and acknowledges receipt of a copy of this Agreement. SUMMIT RESEARCH CORPORATION DEBTOR SECURED PARTY By: /s/ Roy E. Crippen, III By: /s/ Andy N. Kattos ------------------------- ----------------------- ROY E. CRIPPEN, III ANDY N KATTORS Title: PRESIDENT Title: SR. VICE PRESIDENT --------------------- -------------------- GENERAL PROVISIONS. Each Debtor's obligations under this Agreement are independent of the obligations of any other Debtor. Secured Party may sue each Debtor individually or together with any other Debtor. Secured Party may release any part of the Property and Debtor will remain obligated under this Agreement. The duties and benefits of this Agreement will bind the successors and assigns of Debtor and Secured Party. No modification of this Agreement is effective unless made in writing and signed by Debtor and Secured Party. Whenever used, the plural includes the singular and the singular includes the plural. Time is of the essence. APPLICABLE LAW. This Agreement is governed by the laws of the state in which Secured Party is located. In the event of a dispute, the exclusive forum, venue, and place of jurisdiction will be the state in which Secured Party is located, unless otherwise required by law. If any provision of this Agreement is unenforceable by law, the unenforceable provision will be severed and the remaining provisions will still be enforceable. NAME AND LOCATION. Debtor's name indicated on page 1 is Debtor's exact legal name. If Debtor is an individual, Debtor's address is Debtor's principal residence. If Debtor is not an individual, Debtor's address is the location of Debtor's chief executive offices or sole place of business. If Debtor is an entity organized and registered under state law, Debtor has provided Debtor's state of registration on page 1. Debtor will provide verification of registration and location upon Secured Party's request. Debtor will provide Secured Party with at least 30 days notice prior to any change in Debtor's name, address, or state of organization or registration. WARRANTIES AND REPRESENTATIONS. Debtor has the right, authority, and power to enter into this Agreement. The execution and delivery of this Agreement will not violate any agreement governing Debtor or Debtor's property, or to which Debtor is a party. Debtor makes the following warranties and representations which continue as long as this Agreement is in effect: (1) Debtor is duly organized and validly existing in all jurisdictions in which Debtor does business; (2) the execution and performance of the terms of this Agreement have been duly authorized, have received all necessary governmental approval, and will not violate any provision of law or order; (3) other than previously disclosed to Secured Party, Debtor has not changed Debtor's name or principal place of business within the last 10 years and has not used any other trade or fictitious name; and (4) Debtor does not and will not use any other name without Secured Party's prior written consent. Debtor owns all of the Property, and Secured Party's claim to die Property is ahead of the claims of any other creditor, except as otherwise agreed and disclosed to Secured Party prior to any advance on the Secured Debts. The Property has not been used for any purpose that would violate any laws or subject the Property to forfeiture or seizure. DUTIES TOWARD PROPERTY. Debtor will protect the Property and Secured Party's interest against any competing claim. Except as otherwise agreed. Debtor will keep the Property in Debtor's possession at the address indicated on page 1 of this Agreement. Debtor will keep the Property in good repair and use the Property only for purposes specified on page 1. Debtor will not use the Property in violation of any law and will pay all taxes and assessments levied or assessed against the Property. Secured Party has the right of reasonable access to inspect the Property, including the right to require Debtor to assemble and make the Property available to Secured Party. Debtor will immediately notify Secured Party of any loss or damage to the Property. Debtor will prepare and keep books, records, and accounts about the Property and Debtor's business, to which Debtor will allow Secured Party reasonable access. Debtor will not sell, offer to sell, license, lease, or otherwise transfer or encumber the Property without Secured Party's prior written consent. Any disposition of the Property will violate Secured Party's rights, unless the Property is inventory sold in the ordinary course of business at fair market value. If the Property includes chattel paper or instruments, either as original collateral or as proceeds of the Property, Debtor will record Secured Party's interest on die face of the chattel paper or instruments. If the Property includes accounts, Debtor will not settle any account for less than the full value, dispose of the accounts by assignment, or make any material change in the terms of any account without Secured Party's prior written consent. Debtor will collect all accounts in the ordinary course of business, unless otherwise required by Secured Party. Debtor will keep the proceeds of the accounts, and any goods returned to Debtor, in trust for Secured Party and will not commingle the proceeds or returned goods with any of Debtor's other property. Secured Parry has the right to require Debtor to pay Secured Parry the full price on any returned items. Secured Party may require account debtors to make payments under the accounts directly to Secured Party. Debtor will deliver the accounts to Secured Party at Secured Party's request. Debtor will give Secured Party all statements, reports, certificates, lists of account debtors (showing names, addresses, and amounts owing), invoices applicable to each account, and any other data pertaining to the accounts as Secured Party requests. If the Property includes farm products, Debtor will provide Secured Party with a list of the buyers, commission merchants, and selling agents to or through whom Debtor may sell the farm products. Debtor authorizes Secured Party to notify any additional parties regarding Secured Party's interest in die Debtor's farm products, unless prohibited by law. Debtor agrees to plant, cultivate, and harvest crops in due season. Debtor will not use any loan proceeds for a purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as explained by federal law. If Debtor pledges the Property to Secured Party (delivers the Property into the possession or control of Secured Party or a designated third party), Debtor will, upon receipt, deliver any proceeds and products of the Property to Secured Party. Debtor will provide Secured Party with any notices, documents, financial statements, reports, and other information relating to the Property Debtor receives as the owner of the Property. PERFECTION OF SECURITY INTEREST. Debtor authorizes Secured Party to file a financing statement covering the Property. Debtor will comply with, facilitate, and otherwise assist Secured Party in connection with obtaining possession or control over the Property for purposes of perfecting Secured Party's interest under the Uniform Commercial Code. INSURANCE. Debtor agrees to keep the Property insured against the risks reasonably associated with the Property until the Property is released from this Agreement. Debtor will maintain this insurance in the amounts Secured Party requires. Debtor may choose the insurance company, subject to Secured Party's approval, which will not be unreasonably withheld. Debtor will have the insurance provider name Secured Party as loss payee on the insurance policy. Debtor will give Secured Party and the insurance provider immediate notice of any loss. Secured Party may apply the insurance proceeds toward the Secured Debts. Secured Party may require additional security as a condition of permitting any insurance proceeds to be used to repair or replace the Property. If Secured Party acquires the Property in damaged condition, Debtor's rights to any insurance policies and proceeds will pass to Secured Party to the extent of the Secured Debts. Debtor will immediately notify Secured Party of the cancellation or termination of insurance. If Debtor fails to keep die Property insured, or fails to provide Secured Party with proof of insurance, Secured Party may obtain insurance to protect Secured Party's interest in the Property. The insurance may include coverages not originally required of Debtor, may be written by a company other than one Debtor would choose, and may be written at a higher rate than Debtor could obtain if Debtor purchased the insurance. AUTHORITY TO PERFORM. Debtor authorizes Secured Party to do anything Secured Party deems reasonably necessary to protect the Property and Secured Party's interest in the Property. If Debtor fails to perform any of Debtor's duties under this Agreement, Secured Party is authorized, without notice to Debtor, to perform the duties or cause them to be performed. These authorizations include, but are not limited to, permission to pay for the repair, maintenance, and preservation of the Property and take any action to realize the value of the Property. Secured Party's authority to perform for Debtor does not create an obligation to perform, and Secured Party's failure to perform will not preclude Secured Party from exercising any other rights under the law or this Agreement. If Secured Party performs for Debtor, Secured Party will use reasonable care. Reasonable care will not include any steps necessary to preserve rights against prior parties or any duty to take action in connection with the management of the Property. If Secured Party comes into possession of the Property, Secured Party will preserve and protect the Property to the extent required by law. Secured Party's duty of care with respect to the Property will be satisfied if Secured Party exercises reasonable care in the safekeeping of the Property or in the selection of a third parry in possession of the Property. Secured Party may enforce the obligations of an account debtor or other person obligated on the Property. Secured Party may exercise Debtor's rights with respect to the account debtor's or other person's obligations to make payment or otherwise render performance to Debtor, and enforce any security interest that secures such obligations. PURCHASE MONEY SECURITY INTEREST. If the Property includes items purchased with the Secured Debts, the Property purchased with the Secured Debts will remain subject to Secured Party's security interest until the Secured Debts are paid in full. Payments on any non-purchase money loan also secured by this Agreement will not be applied to the purchase money loan. Payments on the purchase money loan will be applied first to the non-purchase money portion of the loan, if any, and then to the purchase money portion in the order in which the purchase money Property was acquired. If the purchase money Property was acquired at the same time, payments will be applied in the order Secured Party selects. No security interest will be terminated by application of this formula. DEFAULT. Debtor will be in default if: (1) Debtor (or Borrower, if not the same) fails to make a payment in full when due; (2) Debtor fails to perform any condition or keep any covenant on this or any debt or agreement Debtor has with Secured Party; (3) a default occurs under the terms of any instrument or agreement evidencing or pertaining to the Secured Debts; (4) anything else happens that either causes Secured Party to reasonably believe that Secured Party will have difficulty in collecting the Secured Debts or significantly impairs the value of the Property. REMEDIES. After Debtor defaults, and after Secured Party gives any legally required notice and opportunity to cure the default, Secured Party may at Secured Party's option do any one or more of the following: (1) make all or any part of the Secured Debts immediately due and accrue interest at the highest post-maturity interest rate; (2) require Debtor to gamer the Property and make it available to Secured Party in a reasonable fashion; (3) enter upon Debtor's premises and take possession of all or any part of Debtor's property for purposes of preserving the Property or its value and use and operate Debtor's property to protect Secured Party's interest, all without payment or compensation to Debtor; (4) use any remedy allowed by state or federal law, or provided in any agreement evidencing or pertaining to the Secured Debts. If Secured Party repossesses the Property or enforces the obligations of an account debtor, Secured Party may keep or dispose of the Property as provided by law. Secured Party will apply the proceeds of any collection or disposition first to Secured Party's expenses of enforcement, which includes reasonable attorneys' fees and legal expenses to the extent not prohibited by law, and men to the Secured Debts. Debtor (or Borrower, if not the same) will be liable for the deficiency, if any. By choosing any one or more of these remedies, Secured Party does not give up the right to use any other remedy. Secured Party does not waive a default by not using a remedy. WAIVER. Debtor waives all claims for damages caused by Secured Party's acts or omissions where Secured Party acts in good faith. NOTICE AND ADDITIONAL DOCUMENTS. Where notice is required, Debtor agrees that 10 days prior written notice will be reasonable notice to Debtor under the Uniform Commercial Code. Notice to one party is notice to all parties. Debtor agrees to sign, deliver, and file any additional documents and certifications Secured Party considers necessary to perfect, continue, or preserve Debtor's obligations under this Agreement and to confirm Secured Party's hen status on the Property. EX-10.2 3 a4846993ex10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 SECURITY AND SUBORDINATION AGREEMENT THIS SECURITY AGREEMENT (the "Agreement") is dated effective as of January 3, 2005, between DIGITAL FUSION, INC., a Delaware corporation (the "Debtor"), MICHAEL W. WICKS (the "Secured Party"), and FIRST COMMERCIAL BANK OF HUNTSVILLE ("FCB"). ARTICLE 1 BACKGROUND The Secured Party has agreed to make a loan to the Debtor as evidenced by a Convertible Promissory Note in the principal amount of $2,700,000, dated as of January 3, 2005 (the "Note"). The Debtor has agreed to grant the Secured Party a security interest in property currently owned or later acquired by the Debtor to secure the prompt payment and performance of all liabilities, obligations, and indebtedness of the Debtor under the Note. The parties further acknowledge that the Debtor has entered into a lending transaction with FCB and has granted a security interest, in part, to all Accounts of the Debtor, which shall include the Accounts which are proceeds of the consulting contracts contained herein. The parties acknowledge that, unless and until an event of default shall have occurred hereunder, FCB shall have a first priority security interest on such Accounts regardless of whether they are proceeds of the consulting contracts of the customers, and the Secured Party hereby subordinates its security interest granted herein to FCB and Accounts, as more particularly set out herein. ARTICLE 2 TERMS In consideration of the foregoing, the Secured Party and the Debtor agree as follows: Section 2.1 Grant of Security Interest. To secure the due and punctual payment of the obligations under the Note and all extensions or renewals of the Note, including without limitation all costs and expenses (including reasonable attorneys' fees) incurred in collecting amounts due, the Debtor does hereby grant, bargain sell and convey to the Secured Party a security interest in all consulting contracts ("Consulting Contracts") between Summit Research Corporation ("Summit") and the customers listed on Exhibit "A" ("Customers"), whether such contracts are currently in effect or subsequently entered into between either Summit and such customers or Debtor and such Customers (all such Consulting Contracts are hereinafter collectively referred to as the "Collateral"), together with all proceeds (including insurance, contract and tort claims) and products of all of the foregoing Collateral. Section 2.2 Subordination of Grant of Security Interest. (a) As a material inducement to FCB to lend money to Debtor and to secure the due and punctual payment of the obligations due to FCB, Secured Party agrees that, except as provided herein, so long as Debtor's indebtedness to FCB remains outstanding, Secured Party's interest in Accounts (if any) as this term is defined herein shall be subordinate to that of FCB's security interest in such Accounts. Further, except as specifically provided herein, Secured Party agrees that so long as Debtor's indebtedness to FCB remains outstanding, Secured Party will not take any legal action for the collection of any part of Debtor's Accounts. Except as set forth in paragraph (b) of this Section 2.2, the Secured Party agrees that in the event it receives any payment relating to the Collateral it will hold the same in trust for and immediately pay over to FCB any such amounts. (b) Notwithstanding anything to the contrary contained herein, upon the occurrence of any event of default hereunder or under the Note, Secured Party shall notify FCB in writing of such default, and FCB shall have a period of thirty (30) days from the date of receipt of such notice within which, at its option, to completely cure such default by Debtor. Upon receipt by FCB of written notice of the occurrence of an event of default under the Note and in the event FCB elects not to cure such default as provided herein, FCB agrees that it will immediately upon expiration of such thirty (30) day period take all action necessary to release of record its prior security interest in the Collateral. Secured Party agrees that, in the event FCB elects not to cure any event of default, any monies it receives resulting from the Collateral and related to any work performed thereunder prior to the date two (2) business days after FCB receives written notice that an event of default has occurred (the "Notification Date") under the Note shall be held for the benefit of FCB and shall be immediately paid over to FCB. Likewise, FCB agrees that any monies it receives resulting from the Collateral and related to any work performed thereunder after the Notification Date shall be held for the benefit of Secured Party and shall be immediately paid over to Secured Party Secured Party agrees that in the event an election is made and contracts are reassigned to him, that he will assist, through commercially reasonable efforts, in the collection of accounts receivable which have been properly pledged to FCB, including, but not limited to, providing follow-up service which would be required under said contracts in order to allow said amounts to be collected and paid to FCB; however, that nothing contained herein shall operate to make Secured Party a guarantor of FCB's ability to recover any such payments. (c) All "Accounts" (as defined by the Alabama version of the Uniform Commercial Code), includes accounts whether now owned or hereafter acquired by Debtor and whether now existing or hereafter arising, and all proceeds of the foregoing, whether cash or non-cash. Section 2.3 Representations and Warranties. The Debtor represents and warrants as follows: (a) The execution, delivery and performance of this Agreement are within the Debtor's corporate powers, have been duly authorized, are not in contravention of law or the terms of the Debtor's charter or bylaws, or any indenture, agreement, or undertaking to which the Debtor is a party or by which it is bound. (b) On demand, the Debtor will execute and deliver to the Secured Party such financing statements and other papers, and do all acts, as in the reasonable judgment of the 2 Secured Party may be necessary or appropriate to establish and maintain a valid and prior security interest in the Collateral. (c) The Debtor will pay when due all taxes and assessments and will discharge any liens on or affecting the Collateral or its use. If the Debtor fails so to do, the Secured Party may at its option pay or discharge the same, unless the Debtor is contesting such taxes, assessments, or liens, and the Debtor will reimburse the Secured Party on demand for any such payment, and if payment is delayed then with interest, which shall begin to accrue beginning five business days after the date of demand at the highest rate allowable by law. (d) No Adverse Liens. Except for any security interest specifically set forth on an addendum attached hereto, and except for the security interest granted hereby, the Debtor is or (with respect to Collateral not presently owned by Debtor will be) the lawful owner of all Collateral free from any adverse lien, security interest, or encumbrance, and shall have full right to pledge, sell, assign, or transfer the same to Secured Party. Debtor will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein. (e) Financing Statements. No financing statement covering any Collateral or any proceeds thereof is on file in any public office, except for financing statements specifically set forth on an addendum attached hereto, if any, and except for the financing statements executed by Debtor and Secured Party. At the Secured Party's request, the Debtor will join with Secured Party in executing one or more financing statements pursuant to the Code in form satisfactory to the Secured Party, and will pay the cost of filing the same in all public offices wherever filing is deemed by the Secured Party to be necessary or desirable. The Debtor authorizes the Secured Party to prepare and to file financing statements covering the Collateral signed only by the Secured Party and to sign the Debtor's signature to such financing statements in jurisdictions where Debtor's signature is required. The Debtor promises to pay the Secured Party the fees incurred in filing the financing statements, including but not limited to mortgage recording taxes payable in connection with filings on fixtures, which fees shall become part of the Liabilities secured by this Agreement. (f) Inspection of Collateral and Records. The Secured Party may examine and inspect the Collateral and records and documents related to the Collateral at any time, wherever located. (g) Assignment or Sale. Debtor, its agents, servants, or employees will not sell, assign, or offer to sell or assign or otherwise transfer the Collateral, either in whole or in part, or any interest therein without the written consent of the Secured Party. Section 2.4 Default. The Debtor will be in default on the occurrence of any of the following events or conditions (hereafter called an "Event of Default"): (a) Any default by the Debtor under the Note; (b) The failure of Debtor to perform any of the agreements of the Debtor contained in this Agreement within thirty (30) days of the date of receipt by Debtor of written notice of such failure; 3 (c) The filing of any petition under the Bankruptcy Code, or any similar federal or state statute, by or against the Debtor, which action shall not have been discharged within 60 days after filed; (d) The filing of an application for the appointment of a receiver for, the making of a general assignment for the benefit of creditors by, or the insolvency of the Debtor, which filing is not discharged within 60 days after the date filed; or (e) The taking of possession of any substantial part of the property of the Debtor at the instance of any governmental authority. Section 2.5 Remedies on Default. On occurrence of an Event of Default, the Secured Party may, at any time after the Event of Default, declare all or any of the obligations under the Note immediately due and payable. The Secured Party will have, in addition to all its other rights and remedies, the rights and remedies of a secured party under the Uniform Commercial Code. In exercising its remedies, the Secured Party shall comply with all applicable requirements of the Uniform Commercial Code, including the exercise of commercial reasonableness in connection with any disposition of the Collateral. The remedies of the Secured Party under this Agreement are cumulative, and the exercise of any one or more of them shall not constitute a general election of remedies. Notwithstanding the foregoing, in the event the gross revenue generated by the Collateral for the twelve (12) month period prior to the date of any Event of Default is less than $8,000,000, then the Secured Party's sole remedy for a default under the Note, including the collection of any principal and interest due thereunder, but excluding any fees, costs or expenses incurred in collecting such amounts, shall be the foreclosure upon the Collateral. In the event the gross revenue generated by the Collateral over such period exceeds $8,000,000, then, in addition to any other remedies available to him, Secured Party shall also have a claim directly against the Debtor for payment of any and all amounts due under the Note or hereunder. Section 2.6 Waiver. No act, delay, omission, or course of dealing between the Secured Party and the Debtor shall be a waiver of any of the Secured Party's rights or remedies under this Agreement, and no waiver, change, modification, or discharge in whole or in part of this Agreement or of any obligation will be effective unless in a writing signed by the Secured Party. A waiver by the Secured Party of any rights or remedies under the terms of this Agreement or with respect to any obligation on any occasion will not be a bar to the exercise of any right or remedy on any subsequent occasion. All rights and remedies of the Secured Party hereunder are cumulative and may be exercised singly or concurrently, and the exercise of any one or more of them will not be a waiver of any other. Section 2.7 Power of Attorney. The Debtor appoints the Secured Party as its attorney, with power to execute such documents on the Debtor's behalf and to supply any omitted information and correct patent errors in any documents executed by the Debtor or on the Debtor's behalf; to file financing statements against the Debtor covering the Collateral; to sign the Debtor's name on public records or on any assignment or transfer document necessary in order to transfer ownership of or title to the Collateral to Secured Party; and to do all other things the Secured Party deems necessary, appropriate or convenient, in his sole discretion, to carry out this Agreement. The Debtor ratifies and approves all acts of the attorney and neither the Secured 4 Party nor the attorney will be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law. This power being coupled with an interest, is irrevocable so long as any amount under the Note remains unpaid. Notwithstanding the foregoing, the Secured Party will not exercise any rights contemplated by this paragraph unless an Event of Default has occurred and the Debtor otherwise fails (following the request of the Secured Party) to execute any such documents, supply any such information, correct any such errors, sign the Debtor's name on any such financing statements or do such other things as the Secured Party may deem necessary to carry out this Agreement. Section 2.8 Assignment of Note. If at any time or times by sale, assignment, negotiation, pledge, or otherwise, Secured Party transfers any or all of the Note, such transfer shall, unless otherwise specified in writing, carry with it Secured Party's rights and remedies under this Agreement with respect to such Note transferred, and the transferee shall become vested with such rights and remedies whether or not they are specifically referred to in the transfer; provided, however, Secured Parties assignment of any of the Note to Steven L. Thornton shall not include any of Secured Party's rights and remedies under this Agreement. If and to the extent Secured Party retains any of the Note, Secured Party shall continue to have the rights and remedies herein set forth with respect thereto. Section 2.9 Notice. All notices, requests, demands, claims and other communications under this Agreement shall be in writing, and sent (a) by registered or certified mail, return receipt requested, postage prepaid, or (b) by nationally recognized overnight courier, to the intended recipient as set forth below: If to the Secured Party: Copy to: Michael W. Wicks 106 Balch & Bingham LLP 655 Gallatin Sharpsburg Drive Madison, Street Huntsville, Alabama 35801 Alabama 35758 Attn: George A. Smith, II If to the Debtor: Copy to: Digital Fusion, Inc. Holland & Knight LLP 4940-A Corporate Drive P.O. Box 1288 Huntsville, Alabama 35805 Tampa, Florida 33601-1288 Phone: (973)227-7783 Phone:(813)227-8500 Attn: __________________ Attn: Richard B. Hadlow, Esq. If to FCB: Copy to: First Commercial Bank of Huntsville Stuart M. Maples, Esq. Johnston, Moore, P.O. Box 040002 Huntsville, Maples & Thompson 400 Meridian St., Suite Alabama 35804 Attn: Andy Kattos 301 Huntsville, Alabama 35801 5 Section 2.10 Termination. This Agreement and the security interest of the Secured Party under it shall terminate when the Note is paid in full. Section 2.11 Binding Effect; Assignment. This Agreement shall be binding on, and shall inure to the benefit of the parties and their heirs, successors, assigns, and legal or personal representatives but shall not be assigned by either party without the prior written consent of the other party. Section 2.12 Modification. This Agreement cannot be modified or amended except by a written agreement signed by or on behalf of each of the parties to this Agreement. Section 2.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together shall constitute one and the same instrument. C ^ .^^ Section 2.14 Headings. The titles and headings preceding the text of the paragraphs and other parts of this Agreement have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation, or effect. Section 2.15 Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of Alabama, without respect to principles of conflicts of laws. [Signature page to follow.] 6 [Signature page of Security and Subordination Agreement] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. DIGITAL FUSION. INC. By:. /s/ Roy E. Crippen, III ------------------------------- Name: Roy E. Crippen, III ----------------------------- Title: Chief Executive Officer ---------------------------- /s/ Michael W. Wicks --------------------------------- Michael W. Wicks FIRST COMMERCIAL BANK OF HUNTSVILLE By: /s/ Andy Kattos ------------------------------- Name: Andy Kattos ----------------------------- Title: Sr. Vice President ---------------------------- 7 EXHIBIT "A" CUSTOMERS 1. U.S. Army Research Development and Engineering Command, Research Development and Engineering Center, Redstone Arsenal, AL 35898 ~ Specific Directorates: Systems Simulation, Advanced Sensors Guidance Electronics, Propulsion and Structures, Aviation Engineering Directorate, Engineering Directorate, Software Engineering Directorate, Advanced Systems Directorate, Advanced Technology Initiative 2. PEO Tactical Missiles 3. Boeings SVS 4. Intergraph Corporation 5. General Services Administration 6. CAS, Inc. 7. Computer Sciences Corporation (CSC) 8. Aviation & Missile Solutions (AMS) 8 EX-10.3 4 a4846993ex10_3.txt EXHIBIT 10.3 Exhibit 10.3 STOCK PURCHASE AGREEMENT AMONG DIGITAL FUSION, INC. AND MICHAEL W. WICKS October 28, 2004 TABLE OF CONTENTS Page 1. Definitions...............................................................1 2. Purchase and Sale of Company Shares.......................................4 (a) Basic Transaction.....................................................4 (b) Purchase Price........................................................4 (c) The Closing...........................................................5 (d) Deliveries at the Closing.............................................5 3. Assumption of Company Accounts............................................5 4. Representations and Warranties Concerning the Transaction.................5 (a) Representations and Warranties of the Seller..........................5 (b) Representations and Warranties of the Buyer...........................7 5. Representations and Warranties Concerning the Company.....................8 (a) Organization, Qualification, and Corporate Power......................8 (b) Capitalization........................................................8 (c) Noncontravention......................................................8 (d) Brokers' Fees.........................................................9 (e) Title to Tangible Assets..............................................9 (f) Subsidiaries..........................................................9 (g) Financial Statements..................................................9 (h) Events Subsequent to Most Recent Fiscal Month End.....................9 (i) Legal Compliance......................................................9 (j) Tax Matters..........................................................10 (k) Real Property........................................................10 (l) Contracts............................................................10 (m) Intellectual Property................................................11 (n) Powers of Attorney...................................................11 (o) Litigation...........................................................11 (p) Employee Benefits....................................................11 (q) Insurance............................................................12 (r) Labor Matters........................................................12 (s) Undisclosed Liabilities..............................................13 6. Pre-Closing Covenants....................................................13 (a) General..............................................................13 (b) Notices and Consents.................................................13 (c) Operation of Business................................................13 (d) Full Access; Cooperation.............................................13 (e) Notice of Developments...............................................14 7. Post-Closing Covenants...................................................14 (a) General..............................................................14 (b) Litigation Support...................................................15 (c) Transition...........................................................15 i (d) Seller's Employment Agreement........................................15 (e) Company Employees....................................................15 8. Conditions to Obligation to Close........................................16 (a) Conditions to Obligation of the Buyer................................16 (b) Conditions to Obligation of the Seller...............................17 9. Remedies for Breaches of This Agreement..................................18 (a) Survival of Representations and Warranties...........................18 (b) Obligations of Seller................................................18 (c) Indemnification Obligations of Buyer.................................19 (d) Procedures...........................................................19 (e) Adjustments to Losses................................................20 (f) Maximum Indemnification..............................................20 (g) Time For Making Claims...............................................20 (h) Exclusive Remedy.....................................................21 (i) Treatment of Payments................................................21 (j) Offset...............................................................21 10. Termination.............................................................21 (a) Termination of Agreement.............................................21 (b) Effect of Termination................................................22 (c) Break-Up Fee.........................................................22 11. Miscellaneous...........................................................23 (a) Press Releases and Public Announcements..............................23 (b) No Third-Party Beneficiaries.........................................23 (c) Entire Agreement.....................................................23 (d) Succession and Assignment............................................23 (e) Counterparts.........................................................23 (f) Headings.............................................................23 (g) Notices..............................................................23 (h) Governing Law........................................................24 (i) Amendments and Waivers...............................................24 (j) Severability.........................................................25 (k) Expenses.............................................................25 (l) Construction.........................................................25 (m) Incorporation of Exhibits and Schedules..............................25 Exhibit A=Subordinated Convertible Promissory Note Exhibit B=Financial Statements Exhibit C=Reserved Exhibit D=Form of Seller's Employment Agreement Exhibit E=Form of Registration Rights Agreement Exhibit F=Form of Security Agreement Exhibit G=Escrow Agreement ii STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement") is entered into as of October 28, 2004, by and among Digital Fusion, Inc., a Delaware corporation (the "Buyer"), and Michael W. Wicks (the "Seller"). The Buyer and the Seller are referred to collectively herein as the "Parties." WHEREAS, the Seller owns all of the outstanding capital stock of Summit Research Corporation, an Alabama corporation (the "Company"); and WHEREAS, this Agreement contemplates a transaction in which the Buyer will purchase from the Seller, and the Seller will sell to the Buyer, all of the outstanding capital stock of the Company in return for the consideration set forth below. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and for other good and valuable consideration the receipt and sufficiency is hereby acknowledged, the Parties agree as follows. 1 Definitions. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "Agreement" means this Stock Purchase Agreement between Buyer and the Seller. "Buyer" has the meaning set forth in the preface above. "Cash" means cash and cash equivalents (including marketable securities and short term investments) calculated in accordance with GAAP applied on a basis consistent with the preparation of the Financial Statements. "Closing" has the meaning set forth in Section 2(e) below. "Closing Date" has the meaning set forth in Section 2(e) below. "Code" means the Internal Revenue Code of 1986, as amended. 1 "Company" has the meaning set forth in the preface above. "Company Letter" has the meaning set forth in Section 5 below. "Company Share" means any share of the common stock of the Company. "Confidential Information" means any information concerning the businesses and affairs of the Company that is not already generally available to the public. "Break-Up Fee" has the meaning set forth in Section 10(c) of this Agreement. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Financial Statement" has the meaning set forth in Section 5(g) below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Income Tax" means any federal, state, local, or foreign income tax, including any interest, penalty, or addition thereto, whether disputed or not. "Income Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto. "Indemnified Party" has the meaning set forth in Section 9(d) below. "Indemnifying Party" has the meaning set forth in Section 9(d) below. "Knowledge" means actual knowledge without independent investigation. 2 "Most Recent Financial Statements" has the meaning set forth in Section 5(g) below. "Most Recent Fiscal Month End" has the meaning set forth in Section 5(g) below. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Parties" has the meaning set forth in the preface above. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Purchase Price" has the meaning set forth in Section 2(b) below. "Retained Assets" means the assets of the Company listed in Section 2(e) of the Company Letter. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for taxes not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Seller" has the meanings set forth in the preface above. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Tangible Net Worth" means total assets less intangible assets and total liabilities of the Company. "Tax" means any national, local or foreign income, sales, use, excise, franchise, ad valorem, real and personal property, transfer, gross receipt, stamp, premium, profits, windfall profits, capital stock, production, business and occupation, or similar taxes imposed by any taxing authority, any interest and penalties (civil or criminal), additions to tax, payments in lieu of taxes or additional amounts related thereto or to the nonpayment thereof. 3 "Third Party Claim" has the meaning set forth in Section 9(d) below. 2 Purchase and Sale of Company Shares. (a) Basic Transaction. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell to the Buyer, all of his Company Shares for the consideration specified below in this Section 2. (b) Purchase Price. The aggregate consideration to be paid to the Seller hereunder (the "Purchase Price") shall consist of the following: (i) at the Closing, the Buyer shall pay the Seller the sum of $1,600,000 by delivery of cash payable by wire transfer or delivery of other immediately available funds; (ii) at the Closing, the Buyer shall issue to the Seller 575,000 shares of the Buyer's common stock. Upon acceptance of such Buyer common stock, the Seller shall be deemed to make with respect to such 575,000 shares the same representations, warranties and covenants as set forth in the convertible promissory note referenced in Section 2(b)(iv), below; (iii) on the six month anniversary of the Closing, the Buyer shall pay the Seller the sum of $600,000.00 plus an additional amount equal to the excess of the Company's Tangible Net Worth at the Closing Date in excess of $900,000.00 (the "Second Payment"). The Tangible Net Worth of the Company at the Closing Date shall be determined by the Company's independent certified public accountants, subject to review by the Buyer's independent certified public accountants. The closing balance sheet will exclude any provision for unpaid income taxes, but otherwise will be determined in accordance with GAAP applied in a manner consistent with how GAAP was applied by the Company prior to the Closing Date. If the two accounting firms are unable to agree on a closing balance sheet, they shall choose a third firm of independent certified public accountants who will make a final determination as to the Tangible Net Worth of the Company at the Closing Date. Once determined, the amount of the Second Payment shall bear interest at a rate of 6% per annum from the Closing Date to the date of the payment of the Second Payment. The Second Payment may be prepaid by the Buyer without penalty; and 4 (iv) at the Closing, the Buyer shall issue to Seller and/or his designees a convertible promissory note or notes in the cumulative amount of $2,700,000.00 in the form of Exhibit A hereto. To the extent that the Company's Tangible Net Worth at the Closing Date is less than $900,000, this Note shall be reduced by that same amount. (c) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the Buyer in Huntsville, Alabama, commencing at 9:00 a.m. local time on January 3, 2005 subject to the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as the Buyer and the Seller may mutually determine (the "Closing Date"). (d) Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyer the various certificates, instruments, and documents referred to in Section 8(a) below, (ii) the Buyer will deliver to the Seller the various certificates, instruments, and documents referred to in Section 8(b) below, (iii) the Seller will deliver to the Buyer stock certificates representing all of his Company Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv) the Buyer will deliver to the Seller the consideration specified in Section 2(b) above. (e) Retained Assets. Notwithstanding anything herein to the contrary, prior to or at the Closing, Seller shall cause the Company to distribute to Seller the Retained Assets, which distribution of Retained Assets shall commensurately reduce the Company's Tangible Net Worth at the Closing Date. 3. Assumption of Company Accounts. Upon Closing, the Seller shall transfer and assign to the Buyer, and Buyer shall receive and assume, all right, title, interest and obligation with respect to the Company's accounts receivable and accounts payable arising in the Ordinary Course of Business which are outstanding as of Closing. 4. Representations and Warranties Concerning the Transaction. (a) Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer that the statements contained in this Section 4(a) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4(a)). 5 (i) Authorization of Transaction. The Seller has full power and authority to execute and deliver this Agreement and to perform his obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions. Except as set forth in Section 4(a)(i) of the Company Letter, the Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (ii) Noncontravention. Except as set forth in Section 4(a)(ii) of the Company Letter, neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate or conflict with any provision of the Articles of Incorporation or Bylaws of the Company; (B) violate or result in a breach of or constitute (with due notice or lapse of time, or both) a default under, or give rise to a right to terminate, accelerate payments under, or modify, any contract, lease, loan agreement, mortgage, security agreement or other agreement or instrument (whether or not the same is in writing) to which the Seller or the Company is a party or by which either of them is bound or to which any of their properties or assets is subject; or (C) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject. (iii) Brokers' Fees. The Seller has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated. (iv) Company Shares. The Seller holds of record and owns beneficially the number of Company Shares set forth next to his or its name in Section 5(b) of the Company Letter, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. The Seller is not a party to any option, warrant, purchase right, or other contract or commitment that could require the Seller to sell, transfer, or otherwise dispose of any capital stock of the Company (other than this Agreement). The Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of the Company. 6 (b) Representations and Warranties of the Buyer. The Buyer represents and warrants to the Seller that the statements contained in this Section 4(b) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4(b)). (i) Organization of the Buyer. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation and the State of Alabama. (ii) Authorization of Transaction. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. (iii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject. (iv) Brokers' Fees. The Buyer has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. 5. Representations and Warranties Concerning the Company. The Seller represents and warrants to the Buyer that the statements contained in this Section 5 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 5), except as set forth in the letter from the Company delivered by the Seller to the Buyer on the date hereof (the "Company Letter"). 7 (a) Organization, Qualification, and Corporate Power. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. The Company is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where the lack of such qualification would not have a material adverse effect on the financial condition of the Company. The Company has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. Section 5(a) of the Company Letter lists the directors and officers of the Company. (b) Capitalization. The entire authorized capital stock of the Company consists of 100,000 Company Shares, of which 80,000 Company Shares are issued and outstanding and no Company Shares are held in treasury. All of the issued and outstanding Company Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the Seller as set forth in Section 5(b) of the Company Letter. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Company to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Company is subject or any provision of the articles of incorporation or bylaws of the Company or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). The Company need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement. 8 (d) Brokers' Fees. Except as to legal or accounting fees, the Company has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (e) Title to Tangible Assets. Except as set forth in Section 5(e) of the Company Letter, the Company has good and marketable title to, or a valid leasehold interest in, the tangible assets it uses regularly in the conduct of its businesses. (f) Subsidiaries. The Company has no subsidiaries. (g) Financial Statements. Attached hereto as Exhibit B are the following financial statements (collectively the "Financial Statements"): (i) unaudited balance sheets and statement of income as of and for the fiscal years ended December 31, 2001, 2002, and 2003, for the Company; and (ii) unaudited balance sheets and statement of income (the "Most Recent Financial Statements") as of and for the nine months ended September 30, 2004 (the "Most Recent Fiscal Month End") for the Company. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly the financial condition of the Company as of such dates and the results of operations of the Company for such periods; provided, however, that the Most Recent Financial Statements are subject to normal year-end adjustments and all of the Financial Statements lack footnotes and other presentation items. (h) Events Subsequent to Most Recent Fiscal Month End. Since the Most Recent Fiscal Month End, there has not been any material adverse change in the financial condition of the Company. Without limiting the generality of the foregoing, since that date the Company has not engaged in any practice, taken any action, or entered into any transaction outside the Ordinary Course of Business the primary purpose or effect of which has been to generate or preserve Cash. (i) Legal Compliance. The Company has materially complied with all material applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof). (j) Tax Matters. The Company will pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all Taxes, assessments and other governmental charges imposed upon the Company and its respective real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies, which if unpaid might by law become a lien or charge upon any of its properties; provided, however, that any such Tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto; provided, further, that the Company will pay or cause to be paid all such Taxes, assessments, charges, levies or claims forthwith upon the commencement of foreclosure on any lien which may have attached as security therefor. The Company has made a valid subchapter S election under the Code, and if it is subsequently determined by the Internal Revenue Service that such election was not properly made, any Taxes that are assessed against the Company by reason of such failure shall be indemnified against by the Seller pursuant to this Agreement. 9 (k) Real Property. Section 5(k) of the Company Letter lists all real property that the Company owns, leases or subleases. (i) With respect to each such parcel of owned real property, and except for matters which would not have a material adverse effect on the financial condition of the Company, the identified owner has good and marketable title to the parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for installments of special assessments not yet delinquent, recorded easements, covenants, and other restrictions, and utility easements, building restrictions, zoning restrictions, and other easements and restrictions existing generally with respect to properties of a similar character and there are no outstanding options or rights of first refusal to purchase the parcel of real property, or any portion thereof or interest therein. (ii) With respect to each such parcel of leased or subleased real property, the Seller has delivered to the Buyer correct and complete copies of the leases and subleases listed in Section 5(k) of the Company Letter (as amended to date). Each lease and sublease listed in Section 5(k) of the Company Letter is legal, valid, binding, enforceable, and in full force and effect. (l) Contracts. Section 5(l) of the Company Letter lists all written contracts (including leases) and other written agreements to which the Company is a party the performance of which will involve consideration in excess of $5,000. The Seller has delivered to the Buyer a correct and complete copy of each contract or other agreement listed in Section 5(l) of the Company Letter (as amended to date). The Company has obtained valid and legal rights to enforce the terms and conditions of each of such contracts against the respective other parties thereto, and no defenses, offsets, or counterclaims thereto have been asserted, or, may be made available by any party thereto against the Company. The Seller has not received notice of any default under any of such contracts, and there exists no actual or, threatened, termination, cancellation, or limitation of or any amendment, modification or change to any such contract. 10 (m) Intellectual Property. The Company owns and holds all necessary licenses with respect to any patents, trademarks, copyrights, trade names, service marks and other trade designations, including common law rights, registrations, applications for registration, technology, know-how or processes used in conducting its business ("Intellectual Property"). All Intellectual Property is identified on Section 5(m) of the Company Letter. The Company has not interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties, and the Company has not received any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation. To Seller's Knowledge, no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of the Company. (n) Powers of Attorney. There are no outstanding powers of attorney executed on behalf of the Company. (o) Litigation. Other than as set forth in section 5(o) of the Company Letter, the Company (i) is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge nor (ii) is it a party to (or, to Seller's Knowledge, has it been threatened with) any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction. (p) Employee Benefits. Section 5(p) of the Company Letter lists each Employee Benefit Plan that the Company maintains or to which the Company contributes. (i) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA and the Code, except where the failure to comply would not have a material adverse effect on the financial condition of the Company. (ii) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan. (iii) The Seller has delivered to the Buyer correct and complete copies of the plan documents and summary plan descriptions, and all related trust agreements, insurance contracts, and other funding agreements which implement such Employee Benefit Plan. 11 (q) Insurance. Section 5(q) of the Company Letter lists all insurance policies which will be held by Company on the Closing Date. All such insurance policies are and will remain until the Closing Date, in full force and effect and neither Seller nor the Company is on or prior to the Closing Date in default under any such policy. Seller has provided copies of all such insurance policies to Buyer. (r) Labor Matters. Section 5(r) of the Company Letter contains with respect to each of the Company's employees, full and accurate data, categorized by type of employment, and stating name, date of commencement of employment with the Company, grade, age and the current annual compensation amount, as at the date hereof. Except as set forth in Section 5(r) of the Company Letter, Company is not a party to any collective bargaining agreement or any employment agreement or other agreement, plan or arrangement, including but not limited to any agreement, plan or arrangement providing for severance payments to any employee upon termination of employment or which provide benefits upon a change in control of the Company. The Company has not experienced any strike, grievance or any court or arbitration proceeding, claim of unfair labor practices filed against the Company or, threatened to be filed against the Company or any other material labor difficulty, and there is no organized labor strike pending, or threatened against the Company. There is no work stoppage, slow down or lockout pending involving the Company or, threatened involving the Company. There is no labor union of which any of the Company's employees is a member. Except as set forth in Section 5(r) of the Company Letter, there are no claims pending or, threatened relating to the Company's employees for compensation for any injury, disability or illness resulting from their employment or overtime work. The Company has been and until the Closing Date will be, in full compliance with all statutory, regulatory or contractual requirements with respect to its employees. There are no complaints, claims or charges outstanding, or, anticipated, nor are there any orders, decisions, judgments or convictions against or in respect of the Company in connection with its business or its employees under any employment legislation or contract. (s) Undisclosed Liabilities. Except as set forth in Section 5(s) of the Company Letters or other sections of the Company Letters, the Company has no liability related to its business, except for (i) liabilities set forth on the face of the Most Recent Balance Sheet and (ii) liabilities that have arisen after the Most Recent Balance Sheet in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law.) 12 6. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. (a) General. Each of the Parties will use his or its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 8 below). (b) Notices and Consents. Each of the Parties will (and the Seller will cause the Company to) give any notices to, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Section 4(a)(i) and (ii), Section 4(b)(i) and (ii) and Section 5(c) above. (c) Operation of Business. Unless previously approved in writing by the Buyer, the Seller will not permit the Company to engage and the Buyer will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business except that the Company may payoff and terminate its line of credit with First American Bank and have the guarantee of such line of credit by Seller released. (d) Full Access; Cooperation. The Seller will permit, and the Seller will cause the Company to permit, representatives of the Buyer to have full access at all reasonable times, at Buyer's cost and expense, and in a manner so as not to interfere with the normal business operations of the Company, to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to the Company. The Buyer will treat and hold as such any Confidential Information it receives from the Seller and the Company, in the course of the reviews contemplated by this Section 8(d), will not use any of the Confidential Information except in connection with this Agreement, and, if this Agreement is terminated for any reason whatsoever, will return to the Seller and the Company all tangible embodiments (and all copies) of the Confidential Information which are in its possession. As part of the foregoing obligation, the Seller will, and will cause the Company to, assist the Buyer by making available information needed by the Buyer to fulfill its reporting requirements under the securities laws including assisting in the audit of the Company's financial statements. The obligation shall continue beyond the Closing. 13 (e) Notice of Developments. (i) The Seller shall notify the Buyer of any development causing a material breach of any of the representations and warranties in Section 5 above. Unless the Buyer has the right to terminate this Agreement pursuant to Section 10(a)(ii) below by reason of the development and exercises that right within the period of 5 business days referred to in Section 10(a)(ii) below, the written notice pursuant to this Section 6(e)(i) will be deemed to have amended the Company Letter, to have qualified the representations and warranties contained in Section 5 above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. (ii) Each Party will give prompt written notice to the others of any material adverse development causing a breach of any of his or its own representations and warranties in Section 4 above. No disclosure by any Party pursuant to this Section 6(e)(ii), however, shall be deemed to amend or supplement the Company Letter or to prevent or cure any misrepresentation or breach of warranty. 7. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing. (a) General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 9 below). (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, each of the other Parties shall cooperate with it and its counsel in the defense or contest, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the defense or contest, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 9 below). (c) Transition. Except as requested by Buyer in writing, the Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of the Company from maintaining the same business relationships with the Company after the Closing as it maintained with the Company prior to the Closing. 14 (d) Seller's Employment Agreement. As a condition to Closing, the Seller shall enter into an employment agreement with the Buyer, in substantially the form attached hereto as Exhibit D, effective as of the Closing Date. (e) Company Employees. All employees of the Company as of the Closing Date will be considered in good faith for continued employment following the Closing Date. The Parties shall mutually agree upon which such employees to retain. (f) Reimbursement for Taxes. If at anytime following the Closing, the Internal Revenue Service shall determine that the Company was not eligible at anytime prior to the Closing to use the cash method of accounting for computing taxable income for income tax purposes, then the Buyer hereby agrees to reimburse Seller for up to $100,000.00 of taxes, penalties and interest incurred by Seller as to such adjustment by the Internal Revenue Service. Any reimbursement required pursuant to this paragraph shall be made by the Buyer within ten (10) business days following Seller giving written notice to Buyer of either Seller's intention to pay such amount by the tenth day or that Seller has previously paid such amount. 8. Conditions to Obligation to Close. (a) Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 4(a) and Section 5 above shall be true and correct in all material respects at and as of the Closing Date; (ii) the Seller shall have performed and complied with all of his covenants hereunder in all material respects through the Closing; (iii) there shall not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement; (iv) the Seller shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Section 8(a)(i)-(iii) is satisfied in all respects; 15 (v) the Parties shall have received all authorizations, consents, and approvals of governments and governmental agencies referred to in Section 4(a)(ii), Section 4(b)(ii), and Section 5(c) above; (vi) the Seller and the Company shall have entered into an employment agreement pursuant to which the Seller is employed by the Company in substantially the form attached hereto as Exhibit D; (vii) [reserved.]; (viii) with respect to any consulting contract to which the Company is a party, all consents to the assignment of such contracts that are required because of this transaction, shall have been obtained by the Seller; (ix) the Buyer shall have received from counsel to the Seller an opinion in form and substance reasonably satisfactory to the Buyer and its counsel, addressed to the Buyer, and dated as of the Closing Date; and (x) all actions to be taken by the Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. The Buyer may waive any condition specified in this Section 8(a) if it executes a writing so stating at or prior to the Closing. (b) Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 4(b) above shall be true and correct in all material respects at and as of the Closing Date; (ii) the Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) there shall not be any injunction, judgment, order, decree, ruling, or charge in effect preventing consummation of any of the transactions contemplated by this Agreement; 16 (iv) the Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified above in Section 8(b)(i)-(iii) is satisfied in all respects; (v) the Parties shall have received all authorizations, consents, and approvals of governments and governmental agencies referred to in Section 4(a)(ii), Section 4(b)(ii), and Section 5(c) above; (vi) the Seller and the Company shall have entered into an employment agreement pursuant to which the Seller is employed by the Company in substantially the form attached hereto as Exhibit D; (vii) all actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller; and (viii) the Seller shall have received the initial installment of the Purchase Price as contemplated by Section 2 hereof. (ix) the Buyer and the Seller shall have entered into a registration rights agreement in substantially the form of Exhibit E hereto. (x) the Buyer and the Seller shall have entered into a security agreement in substantially the form of Exhibit F hereto. (xi) the Seller shall have received from counsel to the Buyer an opinion in form and substance reasonably satisfactory to the Seller and his counsel, addressed to the Seller, and dated as of the Closing Date. (xii) all actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. The Seller may waive any condition specified in this Section 8(b) if they execute a writing so stating at or prior to the Closing. 9. Remedies for Breaches of This Agreement. (a) Survival of Representations and Warranties. The representations and warranties of the Parties shall survive the Closing for a period of two years from the Closing Date, except the representations and warranties contained in Sections 4(a)(i) and (iv) and Section 5(a) shall survive indefinitely and the representations and warranties contained in Section 5(p) and (j) shall survive until the applicable statute of limitations with respect thereto expire. 17 (b) Obligations of Seller. Effective as of the Closing, and ending on the third anniversary thereof, Seller agrees to indemnify and hold harmless Buyer, and its Affiliates, directors, officers, employees, agents and assigns (each, a "Buyer Indemnified Party") from and against any and all Adverse Consequences as a result of, or based upon or arising from or in relation to: (i) the breach of any of the representations and warranties made by Seller in this Agreement, any schedule or certificate or other document delivered pursuant or in relation, to this Agreement; and (ii) any breach of any of the covenants made by Seller in this Agreement, any schedule or certificate or other document delivered pursuant or in relation, to this Agreement; provided that Seller shall not be required to indemnify or hold harmless any Buyer Indemnified Party for any such Losses to the extent the Purchase Price has been adjusted pursuant to Section 2 in connection therewith. (c) Indemnification Obligations of Buyer. For a period commencing as of the Closing Date and ending on the second anniversary thereof (and with respect to indemnity for matters set forth in Section 9(a) above for representations and warranties that extend beyond the two year period until the expiration of the stated periods), Buyer shall indemnify Seller, from and against any Adverse Consequences as a result of, or based upon or arising from: (i) the material breach of any of the representations and warranties made by Buyer in this Agreement; and (ii) any material breach of any of the covenants made by Buyer in this Agreement. (d) Procedures. For purposes of this section, any party with an indemnification obligation under this section shall be referred to herein as an "Indemnifying Party" and any party entitled to indemnification under this section shall be referred to as an "Indemnified Party". All claims for indemnification by any Indemnified Party hereunder shall be asserted and resolved as set forth in this section. In the event that any written claim or demand for which an Indemnifying Party would be liable to any Indemnified Party hereunder is asserted against or sought to be collected from any Indemnified Party by a third party, such Indemnified Party shall promptly, but in no event more than 30 days following such Indemnified Party's receipt of such claim or 18 demand, notify the Indemnifying Party of such claim or demand and the amount or the estimated amount thereof to the extent then feasible (which estimate shall not be conclusive of the final amount of such claim and demand) (the "Claim Notice"). The Indemnifying Party shall have 30 days from the personal delivery or receipt of the Claim Notice (the "Notice Period") to notify the Indemnified Party (a) whether or not the Indemnifying Party disputes the liability of the Indemnifying Party to the Indemnified Party hereunder with respect to such claim or demand and (b) whether or not it desires to defend the Indemnified Party against such claim or demand. All costs and expenses incurred by the Indemnifying Party in defending such claim or demand shall be a liability of, and shall be paid by, the Indemnifying Party. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such claim or demand and except as hereinafter provided, the Indemnifying Party shall have the right to defend the Indemnified Party (i) by appropriate proceedings and (ii) use or retain counsel in connection with such defense that is reasonably acceptable to the Indemnified Party. The Indemnified Party shall make available to the Indemnifying Party all information reasonably available to such Indemnified Party relating to such claim or demand. In addition, the Indemnified Party and the Indemnifying Party shall render to each other such assistance as may reasonably be requested in order to ensure the proper and adequate defense of any such claim or demand, or to prosecute claims against third parties for contribution or on other theories of recovery related to such claim or demand. The party in charge of the defense shall keep the other party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If any Indemnified Party desires to participate in, but not control, any such defense or settlement it may do so at its sole cost and expense. In the event that the Indemnifying Party does not elect to defend the claim, the Indemnified Party shall not settle a claim or demand without the consent of the Indemnifying Party (which consent will not be unreasonably withheld). The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which consent will not be unreasonably withheld), settle, compromise or offer to settle or compromise any such claim or demand. If the Indemnifying Party elects not to defend the Indemnified Party against such claim or demand, whether by not giving the Indemnified Party timely notice as provided above or otherwise, then the amount of any such claim or demand, or, if the same be contested by the Indemnified Party, then that portion thereof as to which such defense is unsuccessful (and the reasonable costs and expenses pertaining to such defense) shall be the liability of the Indemnifying Party hereunder. To the extent the Indemnifying Party shall control or participate in the defense or settlement of any third party claim or demand, the Indemnified Party will give to the Indemnifying Party and its counsel access to, during normal business hours, the relevant business records and other documents, and shall permit them to consult with the employees and counsel of the Indemnified Party. The Indemnified Party shall use its commercially reasonable best efforts in the defense of all such claims. 19 (e) Adjustments to Losses. The amount of any Loss entitling a party to indemnification under this section shall be reduced by the amount of any insurance proceeds recovered by the Indemnified Party for such Loss, net of all costs and expenses incurred in collecting such insurance proceeds (including, without limitation, reasonable attorneys' fees). (f) Maximum Indemnification. In no event shall the Seller be liable for indemnification pursuant to this Section 9 in an amount that exceeds the Purchase Price. (g) Time For Making Claims. No claim for indemnification hereunder will be valid unless it is submitted in writing within the indemnification periods set forth in Section 9(c) of this Agreement. Nevertheless, once a claim is timely made under this Agreement, Adverse Consequences arising after the time period expires for making such claim that relate to such claim, shall be recoverable. (h) Exclusive Remedy. This section shall be the exclusive remedies of the Parties hereto for damages under this Agreement and shall be deemed to preclude the exercise of any other rights and the pursuit of other remedies (whether in contract, tort or otherwise) in damages for the breach (or alleged breach) of any representation, warranty, covenant or agreement contained herein or made pursuant hereto; provided, however, that these exclusive remedies for damages will not be construed to preclude a party from bringing an action for specific performance or other equitable remedy to require the other parties to perform its or their obligations under this Agreement. (i) Treatment of Payments. All payments made pursuant to this Article 9 shall be treated as adjustments to the purchase price for the Company Shares. Notwithstanding anything in this Agreement to the contrary, Buyer shall not be indemnified or reimbursed for any tax consequences arising from the receipt or accrual of an indemnity payment hereunder, including, without limitation, any such consequences arising from adjustments to the basis of any asset resulting from an adjustment to the Purchase Price, or any additional Taxes resulting from any such basis adjustment. (j) Offset. To the extent the Purchase Price is deferred pursuant to Section 2(b), Buyer shall have the right to offset against such deferred payments any claim that it has against Seller for indemnity pursuant to this Agreement. 20 10. Termination. (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyer and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) the Buyer may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing in the event (A) the Seller has within the then previous five (5) business days given the Buyer any notice pursuant to Section 6(e)(i) above and (B) the development that is the subject of the notice has had a material adverse effect upon the financial condition of the Company; (iii) the Buyer may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing (A) in the event the Seller has breached any material representation, warranty, or covenant contained in this Agreement (other than the representations and warranties in Section 5 above) in any material respect, the Buyer has notified the Seller of the breach, and the breach has continued without cure for a period of fifteen (15) days after the notice of breach or (B) if the Closing shall not have occurred on or before January 3, 2005, by reason of the failure of any condition precedent under Section 8(a) hereof (unless the failure results primarily from the Buyer itself breaching any representation, warranty, or covenant contained in this Agreement); (iv) the Seller may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing (A) in the event the Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Buyer of the breach, and the breach has continued without cure for a period of fifteen (15) days after the notice of breach or (B) if the Closing shall not have occurred on or before January 3, 2005, by reason of the failure of any condition precedent under Section 8(b) hereof (unless the failure results primarily from any of the Seller themselves breaching any representation, warranty, or covenant contained in this Agreement); and (v) the Seller may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing in the event there is any change or development in Buyer's business that will have or has had a material adverse effect upon the financial condition of the Buyer. (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 10(a) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); provided, however, that the confidentiality provisions contained in Section 6(d) above shall survive termination. 21 (c) Break-Up Fee. If the Buyer terminates this Agreement pursuant to Section 10(a)(iii) above, the Seller shall pay to the Buyer a break-up fee of $250,000. If the Seller terminates this Agreement pursuant to Section 10(a)(iv), the Buyer shall pay the Seller a break-up fee of $250,000. To secure these obligations, on the date of this Agreement, each of the Buyer and the Seller shall deposit $250,000 into escrow pursuant to the Escrow Agreement attached hereto as Exhibit G. 11. Miscellaneous. (a) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the Buyer and the Seller; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its best efforts to advise the other Parties prior to making the disclosure). (b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. (c) Entire Agreement. This Agreement (including the documents referred to herein), together with the Letter of Intent previously executed by the Parties, constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they have related in any way to the subject matter hereof. (d) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Buyer and the Seller; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). 22 (e) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to the Seller: Michael W. Wicks 106 Sharpsburg Drive Madison, Alabama 35758 with a copy to: Balch & Bingham LLP 655 Gallatin Street Huntsville, Alabama 35801 Attn: George A. Smith II If to the Buyer: Digital Fusion, Inc. 4940-A Corporate Drive Huntsville, AL 35805 Attn: Roy E. Crippen III with a copy to: Holland & Knight LLP P. O. Box 1288 Tampa, FL 33601-1288 Attn: Richard B. Hadlow, Esq. Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. 23 (h) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Alabama without giving effect to any choice or conflict of law provision or rule (whether of the State of Alabama or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Alabama. (i) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (k) Expenses. Each of the Buyer, the Seller and the Company shall bear its own fees, costs and expenses (including legal, accounting and consulting fees and expenses) incurred in connection with this Agreement or the transactions contemplated hereby. (l) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. (m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. * * * * * 24 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. "Buyer" DIGITAL FUSION, INC., a Delaware corporation By: /s/ Gary S. Ryan ------------------------------------ Name: Gary S. Ryan Title: President "Seller" /s/ Michael W. Wicks --------------------------------------- Michael W. Wicks, an individual 25 EX-10.4 5 a4846993ex10_4.txt EXHIBIT 10.4 Exhibit 10.4 THIS PROMISSORY NOTE AND THE SHARES OF COMMON STOCK TO BE DELIVERED UPON CONVERSION OF THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAW. NO SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS PROMISSORY NOTE OR ANY SUCH SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL, SATISFACTORY TO MAKER, IS OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS. CONVERTIBLE PROMISSORY NOTE --------------------------- $2,700,000 January 3, 2005 FOR VALUE RECEIVED, DIGITAL FUSION, INC., a Delaware corporation ("Maker"), hereby promises to pay to MICHAEL W. WICKS ("Holder") the principal amount of Two Million Seven Hundred Thousand Dollars ($2,700,000), together with interest thereon at a per annum rate equal to five percent (5%). No interest shall accrue on this Promissory Note until six months from the date hereof. Additionally, no interest shall accrue on this Promissory Note during any calendar month in which the Maker's common stock is publicly traded and the average closing price of the Maker's common stock is greater than $2.80 per share. With the foregoing exceptions, interest shall be paid monthly in arrears due and payable on 10th day following the end of each month. Principal and any unpaid accrued interest shall be payable as follows unless on or prior to a due date the Holder elects to convert the Promissory Note into shares of Maker's common stock (the "Shares") as set forth below. Any remaining principal and any unpaid accrued interest shall be payable in full on January 3, 2008 (the "Due Date"). Additionally, on or before the dates set forth below, Maker shall pay to Holder so much of the principal and interest balance so that the outstanding balance of principal and interest of this Promissory Note shall not exceed the amounts set forth opposite such date below: Date Outstanding Balance ---- ------------------- December 31, 2005 $2,100,000.00 December 31, 2006 $1,500,000.00 The principal portion of this Promissory Note may be converted (in minimum blocks of $200,000 of principal) at any time by Holder into a number of Shares determined by dividing the converted principal amount of this Promissory Note by the Conversion Price in effect on the date such conversion is to be effectuated. The term "Conversion Price" shall mean the price per share used to determine the number of Shares deliverable upon conversion of this Promissory Note, which price shall initially be $2.25 per share, subject to adjustment as provided below. As to the required reduction in balance of this Promissory Note on December 31, 2005 and December 31, 2006, no conversion hereunder shall be effective in reducing the outstanding balance for purposes of determining the amount due on such dates unless written notice of the conversion is given by Holder at least 90 days prior to such date. No conversion hereunder shall be effective unless written notice of the conversion is given by Holder at least 180 days prior to the Due Date, effective not later than the Due Date. The Conversion Price and number of Shares issuable upon conversion in accordance with this Promissory Note shall also be proportionally adjusted if the Maker shall (i) declare a dividend or make a distribution on the common stock in shares of its common stock, or (ii) combine, subdivide or reclassify the outstanding shares of common stock into a different number of shares so that Holder shall be entitled to receive the number of Shares it would have been entitled to receive had this Promissory Note been converted immediately prior to such event. This Promissory Note is issued pursuant to a Stock Purchase Agreement of even date herewith between the Maker and the Holder (the "Stock Purchase Agreement") and is subject to all of the provisions thereof, including, but not limited to, the Maker's right of offset. This Promissory Note is secured by a Security and Subordination Agreement of even date herewith, between the Maker, Summit Research Corporation, the Holder and First Commercial Bank of Huntsville. The happening of any one or more of the following events shall constitute an event of default hereunder: (a) Default in the payment of the principal of or interest on this Promissory Note when the same becomes due and payable; (b) The occurrence of any event of default under any loan by Maker with First Commercial Bank of Huntsville, whether now in existence or hereinafter arising, and the failure to cure same within any applicable cure period, which event of default causes an acceleration of the obligations or debt owed to First Commercial Bank of Huntsville; (c) The occurrence of any event of default of Maker in the Security Agreement, and the failure to cure same within any applicable cure period; (d) The occurrence of any event of default of Maker in the Stock Purchase Agreement, and the failure to cure same with any applicable cure period; or -2- (e) The termination of the employment of Holder with Maker other than pursuant to Sections 3(a), 3(b) and 3(c) of that certain Employment Agreement dated the date hereof by and between Holder and Maker. Upon the occurrence of an event of default, or at any time thereafter during the continuance of any such event, the Holder may, with or without notice to the Maker, declare this Promissory Note to be forthwith due and payable, whereupon this Promissory Note and the indebtedness evidenced hereby shall forthwith be due and payable, both as to principal and interest, without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in any other instrument executed in connection with or securing this Note to the contrary notwithstanding. If this Promissory Note or any installment of principal or interest hereon becomes due and payable on Saturday, Sunday or other day on which commercial banks are authorized or permitted to close under the laws of the State of Alabama, the maturity of this Promissory Note or such installment shall be extended to the next succeeding business day. Maker shall, on or before the Due Date, pay the outstanding principal balance under this Promissory Note, together with accrued interest, by wire transfer or other cash equivalent acceptable to Maker. If Holder has not received the full amount of any of the payments by the end of the date it is due, Maker agrees to pay a late charge to the Holder in the amount of three percent (3%) of the overdue payment. The Holder of this Promissory Note, by acceptance hereof, agrees that this Promissory Note and the Shares to be issued upon conversion hereof are being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Promissory Note, or any Shares to be issued upon conversion hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"). Upon conversion of this Promissory Note, the Holder hereof shall confirm in writing, by executing the form attached as Schedule 1 to Exhibit A hereto, that the Shares so purchased are being acquired for investment and not with a view toward distribution or resale. This Promissory Note and all Shares issued upon conversion of this Promissory Note (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the following form: "THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED." -3- In addition, in connection with the issuance of this Promissory Note, the Holder specifically represents to the Maker by acceptance of this Promissory Note as follows: (1) The Holder is aware of the Maker's business affairs and financial condition, and has acquired information about the Maker sufficient to reach an informed and knowledgeable decision to acquire this Promissory Note. The Holder has executed a confidentiality agreement and will hold all information governed by that agreement in accordance with the terms of such agreement. The Holder is acquiring this Promissory Note for his own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act. (2) The Holder understands that this Promissory Note and the Promissory Note Shares have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent as expressed herein. In this connection, the Holder understands that, in the view of the Securities and Exchange Commission (the "SEC"), the statutory basis for such exemption may be unavailable if the Holder's representation was predicated solely upon a present intention to hold the Promissory Note and the Shares for the minimum capital gains period specified under applicable tax laws, for a deferred sale, for or until an increase or decrease in the market price of the Promissory Note and the Shares, or for a period of one year or any other fixed period in the future. (3) The Holder further understands that this Promissory Note and the Shares must be held indefinitely unless subsequently registered under the Securities Act and any applicable state securities laws, or unless exemptions from registration are otherwise available. (4) The Holder is aware of the provisions of Rule 144 and 144A, promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: the availability of certain public information about the Maker, the resale occurring not less than one year after the party has purchased and paid for the securities to be sold; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the amount of securities being sold during any three-month period not exceeding the specified limitations stated therein. (5) The Holder further understands that at the time it wishes to sell this Promissory Note and the Shares there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Maker may not be satisfying the current public information requirements of Rule 144 and 144A, and that, in such event, the Holder may be precluded from selling this Promissory Note and the Promissory Note Shares under Rule 144 and 144A even if the one (1)-year minimum holding period had been satisfied. (6) The Holder further understands that in the event all of the requirements of Rule 144 and 144A are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 and 144A is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 and 144A will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. -4- With respect to any offer, sale or other disposition of this Promissory Note, or any Shares acquired pursuant to the conversion of this Promissory Note prior to registration of such Promissory Note or Shares, the Holder hereof and each subsequent Holder of this Promissory Note agrees to give written notice to the Maker prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, if reasonably requested by the Maker, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Securities Act as then in effect or any federal or state law then in effect) of this Promissory Note or such Shares and indicating whether or not under the Securities Act certificates for this Promissory Note or such Shares to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with applicable law. Promptly upon receiving such written notice and reasonably satisfactory opinion, if so requested, the Maker, as promptly as practicable, shall notify such Holder that such Holder may sell or otherwise dispose of this Promissory Note or such Shares, all in accordance with the terms of the notice delivered to the Maker. If a determination has been made pursuant to this paragraph that the opinion of counsel for the Holder is not reasonably satisfactory to the Maker, the Maker shall so notify the Holder promptly after such determination has been made and neither this Promissory Note nor any Shares shall be sold or otherwise disposed of until such disagreement has been resolved. The foregoing notwithstanding, this Promissory Note or such Shares may as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 and 144A under the Securities Act, provided that the Maker shall have been furnished with such information as the Maker may reasonably request to provide a reasonable assurance that the provisions of Rule 144 and 144A have been satisfied. Each certificate representing this Promissory Note or the Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the Holder, such legend is not required in order to ensure compliance with such laws. The Maker may issue stop transfer instructions to its transfer agent or, if acting as its own transfer agent, the Maker may stop transfer on its corporate books, in connection with such restrictions. Any provision of this Note that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. This Promissory Note is not transferable or assignable by Maker without the consent of the Holder. This Promissory Note is not transferable or assignable by Holder without the consent of Maker. If this Promissory Note is collected by law or through an attorney at law, or under advice therefrom, the Maker agrees to pay all costs of collection, including reasonable attorneys' fees. Reasonable attorneys' fees are defined to include, but not be limited to, all fees incurred in all matters of collection and enforcement, trial proceedings and appeals, as well as appearances in and connected with any bankruptcy proceedings or creditors' reorganization or similar proceedings and any post judgment collection efforts. -5- Any failure to exercise any right, remedy or recourse hereunder shall not be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by the Holder and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing, as a bar to, or as a waiver or release of any subsequent right, remedy or recourse as to a subsequent event. In no event shall the amount of interest due or payments in the nature of interest payable hereunder exceed the maximum rate of interest allowed by applicable law, as amended from time to time, and in the event any such payment is paid by the Maker or received by the Holder, then such excess sum shall be credited as a payment of principal, unless the Maker shall notify the Holder, in writing, that the Maker elects to have such excess sum returned to Maker forthwith. The Maker hereby waives all and every exemption secured to them by the laws and constitution of the State of Alabama, and of any other state. The Maker hereby waives demand, presentment, protest, notice of nonpayment or dishonor, and any other notice required by law and agrees that its obligation hereunder shall not be affected by any renewal or extension of the time of payment hereof, or by any indulgences. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] -6- This Promissory Note shall be governed by and construed in accordance with the laws of the State of Alabama applicable to debts and obligations incurred and to be paid solely in such jurisdiction. This Promissory Note may not be modified or amended and no provision hereof may be waived except by a written instrument executed by the parties to be bound thereby. DIGITAL FUSION, INC. By: /s/ Roy E. Crippen, III ------------------------------------------ Roy E. Crippen III, as its President -7- EXHIBIT "A" ----------- NOTICE OF CONVERSION To: DIGITAL FUSION, INC. 1. The undersigned hereby elects to purchase ____ shares of Common Stock of DIGITAL FUSION, INC. pursuant to the terms of the attached Promissory Note. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name or names as are specified below: ------------------------------- (Name) ------------------------------- ------------------------------- (Address) 3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. In support thereof, the undersigned has executed an Investment Representation Statement attached hereto as Schedule 1. ---------------------------------- (Signature) - --------------------- (Date) SCHEDULE 1 ---------- INVESTMENT REPRESENTATION STATEMENT Purchaser: Company DIGITAL FUSION, INC. Security: Common Stock Amount: Date: In connection with the purchase of the above-listed securities (the "Securities"), the undersigned (the "Purchaser") represents to the Maker as follows: (a) The Purchaser is aware of the Maker's business affairs and financial condition, and has acquired sufficient information about the Maker to reach an informed and knowledgeable decision to acquire the Securities. The Purchaser is purchasing the Securities for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Act"). (b) The Purchaser understands that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Purchaser's investment intent as expressed herein. In this connection, the Purchaser understands that, in the view of the Securities and Exchange Commission ("SEC"), the statutory basis for such exemption may be unavailable if the Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under applicable tax laws, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. (c) The Purchaser further understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. In addition, the Purchaser understands that the certificate evidencing the Securities will be imprinted with the legend referred to in the Promissory Note under which the Securities are being purchased. (d) The Purchaser is aware of the provisions of Rule 144 and 144A, promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: The availability of certain public information about the Maker, the resale occurring not less than one year after the party has purchased and paid for the securities to be sold; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the amount of securities being sold during any three-month period not exceeding the specified limitations stated therein. (e) The Purchaser further understands that at the time it wishes to sell the Securities there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Maker may not be satisfying the current public information requirements of Rule 144 and 144A, and that, in such event, the Purchaser may be precluded from selling the Securities under Rule 144 and 144A even if the one-year minimum holding period had been satisfied. (f) The Purchaser further understands that in the event all of the requirements of Rule 144 and 144A are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Purchaser: ------------------------------------------- Date: ------------------------------------------------ EX-10.5 6 a4846993ex10_5.txt EXHIBIT 10.5 Exhibit 10.5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into this 3rd day of January, 2005, by and between DIGITAL FUSION, INC., a Delaware corporation (the "Company") and MICHAEL W. WICKS ("Wicks"). WHEREAS, pursuant to that certain Stock Purchase Agreement of even date herewith by and between the Company and Wicks (the "Stock Purchase Agreement"), Wicks acquired 575,000 shares of the Company's common stock (the "Common Stock") and was issued a convertible promissory note (the "Note") which is convertible into Common Stock in certain events (a "Conversion Event") as specifically set forth in the Note. WHEREAS, as a condition to entering into the Stock Purchase Agreement, Wicks desires that the Company grant certain registration rights with respect to the Common Stock. NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained, the Investors and the Company hereby agree as follows: 1. Definitions. ------------ As used herein: (a) The term "Exchange Act" means the Securities Exchange Act of 1934, as amended. (b) The term "Holder" means Wicks and any heirs, successors, assigns or transferees of Wicks contemplated by Section 18 hereof. (c) The terms "register," "registered," and "registration," unless the context otherwise requires, refer to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such Registration Statement. (d) The term "Person" shall have the meaning set forth in Section 2(2) of the Securities Act. (e) The term "Prospectus" shall have the meaning set forth in Section 2(10) of the Securities Act. (f) The term "Registrable Securities" means all of the Company's Common Stock which was acquired by Holder pursuant to the Stock Purchase Agreement and all of the Company's Common Stock which will be converted from the Note. (g) The term "Registration Expenses" shall mean any and all expenses incident to the performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" 1 (and its counsel) that is required to be retained by any Holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of one counsel for any underwriters or Holder in connection with blue sky qualification of any of the Registrable Securities) and compliance with the rules of the NASD, (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, and in preparing or assisting in preparing, printing and distributing any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements of counsel for the Company and of the independent certified public accountants of the Company, including the expenses of any "cold comfort" letters required by or incident to such performance and compliance, (vi) the fees and expenses of any exchange agent or custodian, (vii) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (viii) the reasonable fees and expenses of any special experts retained by the Company in connection with any Registration Statement, and (v) the reasonable fees and expenses of one special legal counsel for Holder. (h) The term "Registration Statement" shall mean any Registration Statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. (i) The term "Securities Act" means the Securities Act of 1933, as amended. (j) The term "SEC" means the Securities and Exchange Commission. 2. Piggyback Registration Rights. ------------------------------ (a) Whenever securities of the Company are to be registered under the Securities Act (other than on a registration statement related to any employee benefit plan, acquisition or corporate reorganization) (a "Piggyback Registration"), the Company will: (i) promptly give to the Holder written notice thereof (in any event within three business days after its receipt of notice of any exercise of demand registration rights by any holder of the Company's securities and at least 40 days prior to the filing of any registration statement), which notice shall include a list of the jurisdictions in which the Company intends to attempt to qualify its Common Stock under the applicable blue sky or other state securities laws; and (ii) use its best efforts to cause to be included in such registration under the Securities Act (and any related qualification under blue sky laws or other compliance) and in any underwriting involved therein, all of the Registrable Securities specified in a written request made within 30 days after receipt of such written notice from the Company by the Holder. (b) If, in connection with a Piggyback Registration that is an underwritten primary registration on behalf of the Company, the managing underwriter shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, then the 2 number of shares of Common Stock that may be included in such Registration Statement shall be apportioned in the following priority: (i) first, the shares of Common Stock the Company proposes to sell under the Registration Statement; (ii) second shares of Common Stock Madison Run, LLC or Madison Run Holdings, LLC proposes to sell under the Registration Statement pursuant to registration rights possessed by those entities as of the date hereof, (iii) third the Registrable Securities requested to be included in such Registration Statement by the Holder; and (iv) fourth, other shares of Common Stock requested to be included in such Registration Statement by any other selling stockholder. The Company shall not be required by this Section 2(b) to reduce the number of shares of Common Stock to be offered by the Company in such Registration Statement for any reason. (c) If, in connection with a Piggyback Registration that is an underwritten secondary registration on behalf of holders of the Company's securities (the "Initiating Securityholders"), the managing underwriter shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, then the number of shares of Common Stock that may be included in such Registration Statement shall be apportioned in the following priority: (i) first, B, shares of Common Stock Madison Run, LLC or Madison Run Holdings, LLC proposes to sell under the Registration Statement pursuant to registration rights possessed by those entities as of the date hereof; second, the Registrable Securities owned by the Holder, and (iii) third, other shares of Common Stock requested to be included in such Registration Statement by any other selling stockholder. 3. Effectiveness. -------------- A Registration Statement pursuant to which any Registrable Securities are being offered will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of the Registrable Securities pursuant to such Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have been effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. The Company will be deemed not to have used best efforts to cause the Registration Statement to become, or to remain, effective during the requisite period if it voluntarily takes any action that would result in any such Registration Statement not being declared effective or that would result in the Holder not being able to offer and sell the Registrable Securities during that period unless such action is required by applicable laws and regulations or currently prevailing interpretations of the staff of the SEC. The Company shall use best efforts to maintain the effectiveness for up to 120 days (or such shorter period of time as the underwriters need to complete the distribution of the registered offering) of any Registration Statement pursuant to which any of the Registrable Securities are being offered, and from time to time will amend or supplement such Registration Statement and the Prospectus contained therein to the extent necessary to comply with the Securities Act and any applicable state securities laws or regulations. The Company shall also provide the Holder with as many copies of the Prospectus contained in any such Registration Statement as the Holder may reasonably request. 3 4. Expenses of Registration. ------------------------- All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Agreement shall be borne by the Company. Except as provided herein, the Holder shall pay all underwriters' fees, discounts or commissions or transfer taxes, if any, relating to the sale or disposition of the Holder's Registrable Securities. 5. Registration Procedures. ------------------------ In the case of each registration, qualification, or compliance effected by the Company pursuant to this Agreement, the Company will keep the Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the SEC a Registration Statement with respect to such Registrable Securities as described in Section 2 and use its best efforts to cause such Registration Statement to become effective and to remain effective in accordance with Section 3 (provided that at least five business days before filing a Registration Statement or Prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the Holder copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel); (b) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and current for a period of not less than 120 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof as set forth in such Registration Statement; (c) (i) Furnish to the Holder, and to each underwriter, if any, without charge, such number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such other documents as the Holder or underwriters may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Holder; and (ii) consent to the use of the Prospectus or any amendment or supplement thereto by the Holder of Registrable Securities included in the Registration Statement in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) Use its best efforts to register or qualify such Registrable Securities under all applicable securities or blue sky laws of such jurisdictions of the United States by the time the applicable Registration Statement is declared effective by the SEC as the Holder and any underwriters reasonably request in writing and do any other related acts which may be reasonably necessary or advisable to enable the Holder and underwriters to consummate the disposition in such jurisdictions of the Registrable Securities; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 5(d), (ii) file any general consent to service of process in any jurisdiction where it would not otherwise be subject to such service of process, or (iii) subject itself to taxation in any such jurisdiction if it is not then so subject; 4 (e) Notify the Holder, its counsel, and the managing underwriters, if any, promptly, and promptly confirm such notice in writing, (i) at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which, or the fact that, the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the reasonable request of a majority of the Holders, the Company will prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (ii) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (iii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (iv) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the qualification of the Registrable Securities or the initiation of any proceedings for that purpose, (v) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting or purchase agreement, securities sales agreement or other similar agreement, if any, cease to be true and correct in all material respects, and (vi) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; (f) If applicable, use its best efforts to cause all such Registrable Securities to be listed or quoted on each securities exchange or interdealer quotation system on which similar securities issued by the Company are then listed or quoted; (g) Provide a transfer agent for all such Registrable Securities not later than the effective date of such Registration Statement; (h) Enter into such customary agreements (including underwriting agreements on customary terms) and take all such other actions as the underwriter, if any, reasonably requests in order to expedite or facilitate the disposition of such Registrable Securities; (i) Obtain for delivery to the Company and the managing underwriters, if any, with copies to the Holders of the Registrable Securities being registered, (i) an opinion of legal counsel representing the Company in customary form and covering such matters of the type customarily covered by legal opinions of company counsel in public offerings as the Holders shall reasonably request, dated on the date or dates provided for in the underwriting agreement and (ii) a comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the Holders shall reasonably request, dated the effective date of the Registration Statement and brought down to the closing; (j) If necessary, obtain a CUSIP number for the Registrable Securities not later than the effective date of the Registration Statement; 5 (k) Make available for inspection by the Holder, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or any other agent retained by the Holder or any such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Holder, any such underwriter, attorney, accountant or agent in connection with such Registration Statement; (l) Cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and registered in such names as the Holder or the underwriters may reasonably request at least two business days prior to the closing of any sale of Registrable Securities pursuant to such Registration Statement; (m) Upon the occurrence of any circumstance contemplated by Section 5(e)(iii), 5(e)(iv), or 5(e)(v) hereof, use best efforts to prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and to notify the Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and the Holder hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission; (n) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; and (o) Use best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. 6. Indemnification and Contribution. --------------------------------- (a) In connection with any Registration Statement, the Company shall indemnify and hold harmless each Holder and each underwriter who participates in an offering of the Registrable Securities, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (i) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of or based upon any of the following statements, omissions or violations (a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) covering Registrable Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (B) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (including any preliminary or final Prospectus or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (C) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; 6 (ii) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such Violation, if such settlement is effected with the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) from and against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of counsel chosen by Holder or any underwriter (except to the extent otherwise expressly provided in Section 6(c) hereof)), incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such Violation, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 6(a); provided, however, that (i) this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of a Violation that occurs in reliance upon and in conformity with written information furnished in writing to the Company by the Holder, or any underwriter with respect to the Holder, as the case may be, expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (including any preliminary or final Prospectus or any amendment or supplement thereto) and (ii) the Company shall not be liable to the Holder, any underwriter or controlling Person, with respect to any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary Prospectus to the extent that any such loss, liability, claim, damage or expense of the Holder, any underwriter or controlling Person results from the fact that the Holder or any underwriter, sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus as then amended or supplemented if the Company had previously furnished copies thereof to the Holder or any underwriter or controlling Person and the loss, liability, claim, damage or expense of the Holder or underwriter, or controlling Person results from an untrue statement or omission of a material fact contained in the preliminary Prospectus which was corrected in the final Prospectus. Any amounts advanced by the Company to an indemnified party pursuant to this Section 6 as a result of such losses shall be returned to the Company if it shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company. 7 (b) A selling Holder agrees to indemnify and hold harmless the Company, any underwriter and each of their respective directors, officers (including each officer of the Company who signed the Registration Statement), employees and agents, or any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 6(a) hereof, as incurred, but only with respect to a Violation that occurs in reliance upon and in conformity with written information furnished to the Company by such selling Holder with respect to such Holder expressly for use in such Registration Statement, or any such Prospectus; provided, however, that the obligations of any such Holder hereunder shall be limited to the proceeds received by such Holder from the sale of Registrable Securities contemplated herein. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers properly served on such indemnified party, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have under this Section 6, except to the extent that it is materially prejudiced by such failure. An indemnifying party may participate at its own expense in the defense of such action, or, if it so elects within a reasonable time after receipt of such notice, assume the defense of any suit brought to enforce any such claim; but if it so elects to assume the defense, such defense shall be conducted by counsel chosen by it and approved by the indemnified party or parties, which approval shall not be unreasonably withheld. In the event that an indemnifying party elects to assume the defense of any such suit and retain such counsel, the indemnified party or parties shall bear the fees and expenses of any additional counsel thereafter retained by such indemnified party or parties; provided, however, that the indemnified party or parties shall have the right to employ counsel (in addition to local counsel) to represent the indemnified party or parties who may be subject to liability arising out of any action in respect of which indemnity may be sought against the indemnifying party if, in the reasonable judgment of counsel for the indemnified party or parties, there may be legal defenses available to such indemnified party or parties which are different from or in addition to those available to the indemnifying party, in which event the fees and expenses of appropriate separate counsel shall be borne by the indemnifying party. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to local counsel), separate from its own counsel, for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release in form and substance satisfactory to the indemnified parties of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. 8 (d) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 6 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company and the Holder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company and the Holder, as incurred; provided, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company and the Holder, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and the Holder, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the Holder, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holder agree that it would not be just and equitable if contribution pursuant to this Section 6 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 6, each affiliate of the Holder, and each director, officer, employee, agent and Person, if any, who controls a Holder or such affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. In no event shall the Holder be liable for an amount in excess of the proceeds it receives from the offering. (e) The obligations of the Company and the Holders under this Section 6 shall survive the completion of an offering of Registrable Securities pursuant to a Registration Statement. Notwithstanding the foregoing, to the extent that the indemnification and contribution provisions contained in the underwriting agreement executed in connection with such Registration Statement conflict with the foregoing provisions, the provisions in such underwriting agreement shall control. 7. Information by Holder. ---------------------- The Holder of Registrable Securities included in any registration shall furnish to the Company such written information regarding Holder and the distribution proposed by Holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification, or compliance referred to in this paragraph. 8. Suspension Rights. ------------------ The Company shall have the right, which right may be exercised by the Company only twice during any 12-month period, to extend, suspend or delay the effectiveness of any Registration Statement for a period of up to 90 days if, upon advice of counsel to the Company, effectiveness of such Registration Statement would interfere with any then currently active acquisition, financing or similar transaction of the Company by requiring the premature disclosure of any material non-public corporate development. 9 9. Postponement Rights. -------------------- The Company shall have the right to postpone the filing of any Registration Statement for up to three periods of 30 days if, upon advice of counsel to the Company, the filing of such Registration Statement would interfere with any then currently active acquisition, financing or similar transaction of the Company by requiring the premature disclosure of any material non-public information or because the Company's Board of Directors determines in good faith that it would be seriously detrimental to the Company and its stockholders for such Registration Statement to be filed. 10. No Note Registration Rights. ---------------------------- Nothing in this Agreement shall be construed to impose on the Company any obligations or duties as to the registration of the Note nor grant any holder of the Note any registration rights enforceable against the Company with respect to the Note prior to such Note being converted to Common Stock. 11. Lock-Up Arrangements. --------------------- Upon the consummation of an underwritten public offering yielding gross proceeds to the Company of at least $5,000,000 (a "Public Offering") the Holder agrees that upon the reasonable request of the managing underwriter selected for the Public Offering the Holder will allow for restrictions on sales of its shares pursuant to the Registration Statement for the period selected by the managing underwriter (not to exceed 180 days in any event), including without limitation, at a minimum, not to sell, make any short sale of, pledge, grant any option for the purchase of or otherwise dispose of or reduce its risk of ownership with respect to any Registrable Securities (other than those included in the registration) or other securities of the Company without the prior written consent of the Company or the managing underwriter, as the case may be. Additionally, Holder agrees to execute and deliver a lock-up letter (setting forth the above restrictions in greater detail) if requested by the managing underwriter or the Company in connection with any offering of Registrable Securities; provided that all members of management and all other major stockholders are required to execute and deliver a substantially similar letter. 12. Termination of Obligations. --------------------------- The right of Holder to request inclusion in any registration pursuant to Section 2 hereof shall terminate on the date that all shares of Registrable Securities held or entitled to be held on conversion by such Holder may immediately be sold without restriction (including volume limitations) under Rule 144 promulgated under the Securities Act during any 90-day period. 13. Compliance with Rule 144. ------------------------- With a view to making available to Holder the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration, the Company agrees to use its best efforts to (i) make available to the public and to the Holder such information as will enable Holder to make sales pursuant to Rule 144 and (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act. 10 14. Changes in Capital Stock. ------------------------- If, and as often as, there is any change in the Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Registrable Shares as so changed. 15. Governing Law. -------------- This Agreement shall be governed by and construed in accordance with the laws of Alabama, without regard to the conflict of laws provisions thereof. 16. Amendment. ---------- Any modification, amendment or waiver of this Agreement or any provision hereof shall be in writing executed by Holder and the Company. 17. Severability. ------------- In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 18. Successors and Assigns. ----------------------- This Agreement shall inure to the benefit of and be binding upon the respective heirs, successors, assigns and transferees of the parties hereto, including, without limitation and without the need for an express assignment, subsequent holders of any of the Registrable Securities, who each shall be deemed a "Holder" under this Agreement. If any transferee of Holder shall acquire Registrable Securities, in any manner, whether by operation of law, express assignment or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive all of the the benefits hereof. 19. Entire Agreement. ----------------- This Agreement and the other writings referred to herein contain the entire understandings among the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings among the parties with respect to its subject matter. 11 20. Headings. --------- The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 21. Counterparts. ------------- This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned Holder and the Company have executed this Agreement on the day and year first above written. COMPANY: DIGITAL FUSION, INC. By: /s/ Roy E. Crippen, III -------------------------------- Name: Roy E. Crippen III Title: Chief Executive Officer HOLDER: /w/ Michael W. Wicks ----------------------------------- Michael W. Wicks 12 EX-10.6 7 a4846993ex10_6.txt EXHIBIT 10.6 Exhibit 10.6 ESCROW AGREEMENT ---------------- THIS ESCROW AGREEMENT, dated as of October 28, 2004 ("Escrow Agreement"), is by and between DIGITAL FUSION, INC., a Delaware corporation ("Digital Fusion"); SUMMIT RESEARCH CORPORATION, an Alabama corporation ("Summit"); and SYNOVUS TRUST COMPANY, as Escrow Agent hereunder ("Escrow Agent"). Digital Fusion and Summit are referenced herein collectively as the "Parties" and separately as a "Party." ARTICLE 1 BACKGROUND ---------- Digital Fusion and Summit have entered into a Stock Purchase Agreement (as amended, the "Underlying Agreement"), dated as of October 28, 2004, pursuant to which Digital Fusion shall acquire all the capital stock in Summit. The Underlying Agreement provides that each party shall deposit the Escrow Funds (defined below) in a segregated escrow account to be held by Escrow Agent for the purpose of securing the payment of amounts outlined in Section 10(c) of the Underlying Agreement. Escrow Agent has agreed to accept, hold, and disburse the funds deposited with it and the earnings thereon in accordance with the terms of this Escrow Agreement. Pursuant to the Underlying Agreement, the Parties have appointed the Representatives (as defined below) to represent them for all purposes in connection with the funds to be deposited with Escrow Agent and this Escrow Agreement. In order to establish the escrow of funds and to effect the provisions of the Underlying Agreement, the Parties hereto have entered into this Escrow Agreement. ARTICLE 2 STATEMENT OF AGREEMENT ---------------------- NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows: Section 2.1 Definitions. The following terms shall have the following meanings when used herein: "Representative" shall mean the person so designated on Schedule A hereto or any other person designated in a writing signed by said Party and delivered to Escrow Agent and the other Party in accordance with the notice provisions of this Escrow Agreement, to act as its representative under this Escrow Agreement. "Escrow Funds" shall mean the funds deposited with Escrow Agent pursuant to Section 2.3 of this Agreement, together with any interest and other income thereon. "Escrow Period" shall mean the period commencing on the date hereof and ending on the applicable termination date set forth on Schedule A hereto. "Joint Written Direction" shall mean a written direction executed by the Representatives and directing Escrow Agent to disburse all or a portion of the Escrow Funds or to take or refrain from taking an action pursuant to this Escrow Agreement. "Representatives" shall mean the Digital Fusion Representative and the Summit Representative. Section 2.2 Appointment of and Acceptance by Escrow Agent. Digital Fusion and Summit hereby appoint Escrow Agent to serve as escrow agent hereunder. Escrow Agent hereby accepts such appointment and, upon receipt by wire transfer of the Escrow Funds in accordance with Section 2.3 below, agrees to hold, invest and disburse the Escrow Funds in accordance with this Escrow Agreement. Section 2.3 Deposit of Escrow Funds. Simultaneously with the execution and delivery of this Escrow Agreement, the Parties will each transfer $250,000.00 (the "Escrow Funds") to Escrow Agent, by wire transfer of immediately available funds, to the account of the Escrow Agent referenced on Schedule A hereto. Section 2.4 Disbursements of Escrow Funds. Escrow Agent shall disburse Escrow Funds at any time and from time to time, upon receipt of, and in accordance with, a Joint Written Direction. Such Joint Written Direction shall contain wiring instructions or an address to which a check shall be sent. Upon the expiration of the Escrow Period, Escrow Agent shall distribute, as promptly as practicable, the Escrow Funds in the manner described on Schedule A, without any further instruction or direction from the Representatives. All disbursements of funds from the Escrow Funds shall be subject to the fees and claims of Escrow Agent and the Indemnified Parties (as defined below) pursuant to Section 2.10 and Section 2.11 below. Section 2.5 Suspension of Performance; Disbursement Into Court. If, at any time, (i) there shall exist any dispute between Digital Fusion, Summit or the Representatives with respect to the holding or disposition of all or any portion of the Escrow Funds or any other obligations of Escrow Agent hereunder, (ii) Escrow Agent is unable to determine, to Escrow Agent's sole satisfaction, the proper disposition of all or any portion of the Escrow Funds or Escrow Agent's proper actions with respect to its obligations hereunder, or (iii) the Representatives have not within 30 days of the furnishing by Escrow Agent of a notice of resignation pursuant to Section 2.7 hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent may, in its sole discretion, take either or both of the following actions: (a) suspend the performance of any of its obligations (including without limitation any disbursement obligations) under this Escrow Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of Escrow Agent or until a successor Escrow Agent shall have been appointed (as the case may be). 2 (b) petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in any venue convenient to Escrow Agent, for instructions with respect to such dispute or uncertainty, and to the extent required or permitted by law, pay into such court, for holding and disposition in accordance with the instructions of such court, all Escrow Funds, after deduction and payment to Escrow Agent of all fees and expenses (including court costs and attorneys' fees) payable to, incurred by, or expected to be incurred by Escrow Agent in connection with the performance of its duties and the exercise of its rights hereunder. Escrow Agent shall have no liability to Digital Fusion, Summit, their respective shareholders or members or any other person with respect to any such suspension of performance or disbursement into court, specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of the Escrow Funds or any delay in or with respect to any other action required or requested of Escrow Agent. Section 2.6 Investment of Funds. The Escrow Agent is herein directed and instructed to initially invest and reinvest the Escrow Funds in the investment indicated on Schedule A hereto. With the execution of this document, the parties hereto acknowledge receipt of prospectuses and/or disclosure materials associated with the investment vehicle, either through means of hardcopy or via access to the website associated with the investment selected by the parties to this Escrow Agreement. The parties hereto acknowledge that they have discussed the investment and are in agreement as to the selected investment. Digital Fusion and Summit may provide instructions changing the investment of the Escrow Funds (subject to applicable minimum investment requirements) by the furnishing of a Joint Written Direction to the Escrow Agent; provided, however, that no investment or reinvestment may be made except in the following: (a) direct obligations of the United States of America or obligations the principal of and the interest on which are unconditionally guaranteed by the United State of America; (b) certificates of deposit issued by any bank, bank and trust company, or national banking association (including Escrow Agent and its affiliates), which certificates of deposit are insured by the Federal Deposit Insurance Corporation or a similar governmental agency; (c) repurchase agreements with any bank, trust company, or national banking association (including Escrow Agent and its affiliates); or (d) any institutional money market fund offered by Escrow Agent, including any institutional money market fund managed by Escrow Agent or any of its affiliates. If Escrow Agent has not received a Joint Written Direction at any time that an investment decision must be made, Escrow Agent shall invest the Escrow Funds, or such portion thereof as to which no Joint Written Direction has been received, in investments described in clause (d) above. Each of the foregoing investments shall be made in the name of Escrow Agent. No investment shall be made in any instrument or security that has a maturity of greater than six (6) 3 months. Notwithstanding anything to the contrary contained herein, Escrow Agent may, without notice to the Representatives, sell or liquidate any of the foregoing investments at any time if the proceeds thereof are required for any disbursement of Escrow Funds permitted or required hereunder. All investment earnings shall become part of the Escrow Funds and investment losses shall be charged against the Escrow Funds. Escrow Agent shall not be liable or responsible for loss in the value of any investment made pursuant to this Escrow Agreement, or for any loss, cost or penalty resulting from any sale or liquidation of the Escrow Funds. With respect to any Escrow Funds received by Escrow Agent after ten o'clock, a.m., Huntsville, Alabama, time, Escrow Agent shall not be required to invest such funds or to effect any investment instruction until the next day upon which banks in Huntsville, Alabama are open for business. Section 2.7 Resignation of Escrow Agent. Escrow Agent may resign and be discharged from the performance of its duties hereunder at any time by giving ten (10) days prior written notice to Digital Fusion and Summit specifying a date when such resignation shall take effect. Upon any such notice of resignation, the Representatives jointly shall appoint a successor Escrow Agent hereunder prior to the effective date of such resignation. The retiring Escrow Agent shall transmit all records pertaining to the Escrow Funds and shall pay all Escrow Funds to the successor Escrow Agent, after making copies of such records as the retiring Escrow Agent deems advisable and after deduction and payment to the retiring Escrow Agent of all fees and expenses (including court costs and attorneys' fees) payable to, incurred by, or expected to be incurred by the retiring Escrow Agent in connection with the performance of its duties and the exercise of its rights hereunder. After any retiring Escrow Agent's resignation, the provisions of this Escrow Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Escrow Agent under this Escrow Agreement. Any corporation or association into which the Escrow Agent may be merged or converted or with which it may be consolidated, or any corporation or association to which all or substantially all of the escrow business of the Escrow Agent's corporate trust line of business may be transferred, shall be the Escrow Agent under this Escrow Agreement without further act. Section 2.8 Liability of Escrow Agent. The Escrow Agent undertakes to perform only such duties as are expressly set forth herein and no duties shall be implied. The Escrow Agent shall have no liability under and no duty to inquire as to the provisions of any agreement other than this Escrow Agreement. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith except to the extent that a court of competent jurisdiction determines that the Escrow Agent's gross negligence or willful misconduct was the primary cause of any loss to Digital Fusion or Summit. Escrow Agent's sole responsibility shall be for the safekeeping and disbursement of the Escrow Funds in accordance with the terms of this Escrow Agreement. Escrow Agent shall have no implied duties or obligations and shall not be charged with knowledge or notice of any fact or circumstance not specifically set forth herein. Escrow Agent may rely upon any notice, instruction, request or other instrument, not only as to its due execution, validity and effectiveness, but also as to the truth and accuracy of any information contained therein, which Escrow Agent shall believe to be genuine and to have been signed or presented by the person or parties purporting to sign the same. In no event shall Escrow Agent be liable for incidental, indirect, special, consequential or punitive damages (including, but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. 4 Escrow Agent shall not be obligated to take any legal action or commence any proceeding in connection with the Escrow Funds, any account in which Escrow Funds are deposited, this Escrow Agreement or the Underlying Agreement, or to appear in, prosecute or defend any such legal action or proceeding. Escrow Agent may consult legal counsel selected by it in the event of any dispute or question as to the construction of any of the provisions hereof or of any other agreement or of its duties hereunder, or relating to any dispute involving any party hereto, and shall incur no liability and shall be fully indemnified from any liability whatsoever in acting in accordance with the opinion or instruction of such counsel. Digital Fusion and Summit, jointly and severally, shall promptly pay, upon demand, the reasonable fees and expenses of any such counsel. The Escrow Agent is authorized, in its sole discretion, to comply with orders issued or process entered by any court with respect to the Escrow Funds, without determination by the Escrow Agent of such court's jurisdiction in the matter. If any portion of the Escrow Funds is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by any court affecting such property or any part thereof, then and in any such event, the Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree which it is advised by legal counsel selected by it is binding upon it without the need for appeal or other action; and if the Escrow Agent complies with any such order, writ, judgment or decree, it shall not be liable to any of the parties hereto or to any other person or entity by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. Section 2.9 Indemnification of Escrow Agent. From and at all times after the date of this Escrow Agreement, Digital Fusion and Summit, jointly and severally, shall, to the fullest extent permitted by law, defend, indemnify and hold harmless Escrow Agent and each director, officer, employee, attorney, agent and affiliate of Escrow Agent (collectively, the "Indemnified Parties") against any and all actions, claims (whether or not valid), losses, damages, liabilities, costs and expenses of any kind or nature whatsoever (including without limitation reasonable attorneys' fees, costs and expenses) incurred by or asserted against any of the Indemnified Parties from and after the date hereof, whether direct, indirect or consequential, as a result of or arising from or in any way relating to any claim, demand, suit, action or proceeding (including any inquiry or investigation) by any person, including without limitation Digital Fusion or Summit, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any person under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause or otherwise, arising from or in connection with the negotiation, preparation, execution, performance or failure of performance of this Escrow Agreement or any transactions contemplated herein, whether or not any such Indemnified Party is a party to any such action, proceeding, suit or the target of any such inquiry or investigation; provided, however, that no Indemnified Party shall have the right to be indemnified hereunder for any liability finally determined by a court of competent jurisdiction, subject to no further appeal, to have resulted solely from the gross negligence or willful misconduct of such Indemnified Party. Each Indemnified Party shall, in its sole discretion, have the right to select and employ separate counsel with respect to any action or claim brought or asserted against it, and the reasonable fees of such counsel shall be paid upon demand by the Digital Fusion and Summit jointly and severally. The obligations of Digital Fusion and Summit under this Section 2.9 shall survive any termination of this Escrow Agreement and the resignation or removal of Escrow Agent. 5 The parties agree that neither the payment by Digital Fusion or Summit of any claim by Escrow Agent for indemnification hereunder nor the disbursement of any amounts to Escrow Agent from the Escrow Funds in respect of a claim by Escrow Agent for indemnification shall impair, limit, modify, or affect, as between Digital Fusion and Summit, the respective rights and obligations of Digital Fusion, on the one hand, and Summit, on the other hand, under the Underlying Agreement. Section 2.10 Fees and Expenses of Escrow Agent. Digital Fusion and Summit shall compensate Escrow Agent for its services hereunder in accordance with Schedule A attached hereto and, in addition, shall reimburse Escrow Agent for all of its reasonable out-of-pocket expenses, including attorneys' fees, travel expenses, telephone and facsimile transmission costs, postage (including express mail and overnight delivery charges), copying charges and the like. The additional provisions and information set forth on Schedule A are hereby incorporated by this reference, and form a part of this Escrow Agreement. All of the compensation and reimbursement obligations set forth in this Section 2.10 shall be payable by Digital Fusion and Summit, jointly and severally, upon demand by Escrow Agent. The obligations of Digital Fusion and Summit under this Section 2.10 shall survive any termination of this Escrow Agreement and the resignation or removal of Escrow Agent. Escrow Agent is authorized to, and may, disburse to itself from the Escrow Funds, from time to time, the amount of any compensation and reimbursement of out-of-pocket expenses due and payable hereunder (including any amount to which Escrow Agent or any Indemnified Party is entitled to seek indemnification pursuant to Section 2.9 hereof). Escrow Agent shall notify the Representatives of any disbursement from the Escrow Funds to itself or any Indemnified Party in respect of any compensation or reimbursement hereunder and shall furnish to the Representatives copies of all related invoices and other statements. Digital Fusion, Summit and the Representatives hereby grant to Escrow Agent and the Indemnified Parties a security interest in and lien upon the Escrow Funds to secure all obligations with respect to the right to offset the amount of any compensation or reimbursement due any of them hereunder (including any claim for indemnification pursuant to Section 2.9 hereof) against the Escrow Funds. If for any reason funds in the Escrow Funds are insufficient to cover such compensation and reimbursement, Digital Fusion and Summit shall promptly pay such amounts to Escrow Agent or any Indemnified Party upon receipt of an itemized invoice. Section 2.11 Representations and Warranties; Legal Opinions. Each of Digital Fusion and Summit respectively makes the following representations and warranties to Escrow Agent: (i) It is duly organized, validly existing, and in good standing under the laws of the state of its incorporation or organization, and has full power and authority to execute and deliver this Escrow Agreement and to perform its obligations hereunder. (ii) This Escrow Agreement has been duly approved by all necessary action, including any necessary shareholder or membership approval, has been executed by its duly authorized officers, and constitutes its valid and binding agreement enforceable in accordance with its terms. 6 (iii) The execution, delivery, and performance of this Escrow Agreement is in accordance with the Underlying Agreement and will not violate, conflict with, or cause a default under its articles of incorporation, articles of organization, bylaws, management agreement or other organizational document, as applicable, any applicable law or regulation, any court order or administrative ruling or decree to which it is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement, including without limitation the Underlying Agreement, to which it is a party or any of its property is subject. (iv) The applicable persons designated on Schedule A hereto have been duly appointed to act as its representatives hereunder and have full power and authority to execute and deliver any Joint Written Direction, to amend, modify or waive any provision of this Escrow Agreement and to take any and all other actions as the Representatives under this Escrow Agreement, all without further consent or direction from, or notice to, it or any other party. (v) No party other than the parties hereto has, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof. No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof. (vi) All of its representations and warranties contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement of the Escrow Funds. Section 2.12 Identifying Information. Digital Fusion and Summit acknowledge that a portion of the identifying information set forth on Schedule A is being requested by the Escrow Agent in connection with the USA Patriot Act, Pub.L.107-56 (the "Act"), and Digital Fusion and Summit agree to provide any additional information requested by the Escrow Agent in connection with the Act or any similar legislation or regulation to which Escrow Agent is subject, in a timely manner. The Digital Fusion and the Summit each represent that all identifying information set forth on Schedule A, including without limitation, its Taxpayer Identification Number assigned by the Internal Revenue Service or any other taxing authority, is true and complete on the date hereof and will be true and complete at the time of any disbursement of the Escrow Funds. Section 2.13 Consent to Jurisdiction and Venue. In the event that any party hereto commences a lawsuit or other proceeding relating to or arising from this Escrow Agreement, the parties hereto agree that suit to enforce any provision of this Agreement, or any right, remedy or other matter arising therefrom, will be brought exclusively in the state or federal courts located in Madison County, Alabama. Any of these courts shall be proper venue for any such lawsuit or judicial proceeding and the parties hereto waive any objection to such venue. The parties hereto consent to and agree to submit to the jurisdiction of any of the courts specified herein and agree to accept service of process to vest personal jurisdiction over them in any of these courts. 7 Section 2.14 Notice. All notices, approvals, consents, requests, and other communications hereunder shall be in writing and shall be deemed to have been given when the writing is delivered if given or delivered by hand, overnight delivery service or facsimile transmitter (with confirmed receipt) to the address or facsimile number set forth on Schedule A hereto, or to such other address as each party may designate for itself by like notice, and shall be deemed to have been given on the date deposited in the mail, if mailed, by first-class, registered or certified mail, postage prepaid, addressed as set forth on Schedule A hereto, or to such other address as each party may designate for itself by like notice. Section 2.15 Amendment or Waiver. This Escrow Agreement may be changed, waived, discharged or terminated only by a writing signed by the Representatives and Escrow Agent. No delay or omission by any party in exercising any right with respect hereto shall operate as a waiver. A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion. Section 2.16 Severability. To the extent any provision of this Escrow Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Escrow Agreement. Section 2.17 Governing Law. This Escrow Agreement shall be construed and interpreted in accordance with the internal laws of the State of Alabama without giving effect to the conflict of laws principles thereof. Section 2.18 Entire Agreement. This Escrow Agreement constitutes the entire agreement between the parties relating to the holding, investment and disbursement of the Escrow Funds and sets forth in their entirety the obligations and duties of Escrow Agent with respect to the Escrow Funds. Section 2.19 Binding Effect. All of the terms of this Escrow Agreement, as amended from time to time, shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of Digital Fusion, Summit and Escrow Agent. Section 2.20 Execution in Counterparts. This Escrow Agreement and any Joint Written Direction may be executed in two or more counterparts, which when so executed shall constitute one and the same agreement or direction. Section 2.21 Termination. Upon the first to occur of the termination of the Escrow Period, the disbursement of all amounts in the Escrow Funds pursuant to Joint Written Directions or the disbursement of all amounts in the Escrow Funds into court pursuant to Section 2.5 or Section 2.8 hereof, this Escrow Agreement shall terminate and Escrow Agent shall have no further obligation or liability whatsoever with respect to this Escrow Agreement or the Escrow Funds. 8 IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be executed under seal as of the date first above written. DIGITAL FUSION, INC. [CORPORATE SEAL] By: /s/ Gary S. Ryan --------------------------------------- Title: President --------------------------------------- ATTEST: Jeffrey L. Williams - ---------------------------- Asst. Secretary SUMMIT RESEARCH CORPORATION [CORPORATE SEAL] By: /s/ Michael W. Wicks --------------------------------------- Title: President --------------------------------------- ATTEST: /s/ George Hill - ----------------------------- Secretary SYNOVUS TRUST COMPANY as Escrow Agent By: /s/ Glenda Thomas --------------------------------------- Title: V.P. & T.O. --------------------------------------- 9 SCHEDULE A ---------- ESCROW FUNDS Escrow Funds wiring instructions: M&I Marshall & Ilsley Bank - --------------------------------- ABA 075000051 Credit Account 182-45964 F/B/O Synovus Trust Co. N.A. #74-2037-01-3 F/C Digital Fusion/Summit Research Escrow Milwaukee, WI Escrow Agent Fees: - ------------------ Annual Escrow Fee: $2,500 ----- The Annual Escrow Fee is payable upon execution of the escrow documents. Annual fees cover a full year in advance, or any part thereof, and thus are not pro-rated in the year of termination. The fees quoted in this schedule apply to services ordinarily rendered in the administration of an Escrow Account and are subject to reasonable adjustment based on final review of documents, or when the Escrow Agent is called upon to undertake unusual duties or responsibilities, or as changes in law, procedures, or the cost of doing business demand. Services in addition to and not contemplated in this Agreement, including, but not limited to, document amendments and revisions, non-standard cash and/or investment transactions, calculations, notices and reports, and legal fees, will be billed as extraordinary expenses. Unless otherwise indicated, the above fees relate to the establishment of one escrow account. Additional sub-accounts governed by the same Escrow Agreement may incur an additional charge. Transaction costs include charges for wire transfers, checks, internal transfers and securities transactions. Taxpayer Identification Numbers: Digital Fusion: ________________________ Summit: _____________________________ Termination and Disbursement. Unless earlier terminated by the provisions of the Escrow Agreement, the Escrow Period will terminate on January 3, 2005. Any Escrow Funds remaining on such date shall be distributed 50% to Digital Fusion and 50% to Summit in accordance with Section 2.4 of the Escrow Agreement. Investment Instructions Federated Government Obligations Fund Representatives: - ---------------- The following person is hereby designated and appointed as Digital Fusion Representative under the Escrow Agreement: Gary S. Ryan /s/ Gary S. Ryan --------------------------- ------------------------------------ Name Specimen signature The following person is hereby designated and appointed as Summit Representative under the Escrow Agreement: Michael W. Wicks /s/ Michael W. Wicks --------------------------- ------------------------------------ Name Specimen signature Representative Information. The following information should be provided to Escrow Agent separately by each Representative and any future Representative: Date of Birth Address Mailing Address, if different Social Security Number Notice Addresses: - ----------------- Principal Place of Business, if different If to Digital Fusion at: Digital Fusion, Inc.: - -------------------------------------------- 4940-A Corporate Drive _____________________________ Huntsville, Alabama _____________________________ ATTN: Roy E. Crippen III Facsimile: 256-837-2821 Telephone: 256-837-2620 E-mail: gryan@digitalfusion.com If to Summit: - ------------- Summit Research Corporation ______________________________ 4910 Corporate Drive, Suite H ______________________________ Huntsville, Alabama 35805 ______________________________ ATTN: Mike Wicks Facsimile: 256-837-0988 Telephone: (256) 876-1091 E-mail: mike.wicks@summit-research-corp.com If to the Escrow - ---------------- Agent: Synovus Trust Company, as Escrow Agent 301 Washington Street _____________________________ Huntsville, Alabama 35801 _____________________________ Attn: Ron Wood Facsimile: (256) 551-3360 EX-10.7 8 a4846993ex10_7.txt EXHIBIT 10.7 Exhibit 10.7 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, effective as of January 3, 2005 (the "Effective Date"), is made by and between DIGITAL FUSION, INC., a Delaware corporation (the "Company") with its corporate offices at 4940-A Corporate Drive, Huntsville, Alabama 35805, and MICHAEL W. WICKS (the "Executive"), residing at 106 Sharpsburg Drive, Madison, Alabama 35758. ARTICLE 1 BACKGROUND INFORMATION ---------------------- As to the Effective Date the Company is acquiring Summit Research Corporation, an Alabama corporation, pursuant to that certain Stock Purchase Agreement, dated October 28, 2004, by and between the Company and Executive (the "Purchase Agreement"). As part of the consideration paid to the Executive pursuant to the Purchase Agreement, the Company is issuing to Executive a Convertible Promissory Note dated as of the Effective Date in the original principal amount of $2,700,000 and payable to the Executive (the "Promissory Note"; as used herein, the term "Promissory Note" shall include any and all extensions, amendments, restatements or modifications of the original Promissory Note). Additionally, as part of the Purchase Agreement, the Company and Executive wish to enter into an employment agreement upon the terms and conditions set forth herein. Therefore, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 2 OPERATIVE PROVISIONS -------------------- Section 2.1 Employment; Term. (a) Employment. Subject to the terms and conditions set forth herein, the Company agrees to employ and Executive agrees to serve as the Company's President, Summit Research, a division of Digital Fusion. During the term of employment, Executive shall have such responsibilities, duties and authorities as commensurate with companies of similar size, and additionally, such responsibilities, duties and authorities as may be assigned to the Executive by the Company's President, provided, that, the same is not inconsistent with such position. Executive agrees that he will use his full business time to promote the interests of the Company and its affiliates and to fulfill his duties hereunder. Notwithstanding the foregoing, Executive will contribute approximately $120,000.00 of his direct labor per year in personal billing coverage. Billing coverage is subject to change upon mutual written agreement. Nothing in this Agreement shall however preclude Executive from engaging, so long as, in the reasonable determination of the Company's Board of Directors, such activities do not interfere with the execution of his duties and responsibilities hereunder, in charitable and community affairs, from managing any passive investment made by Executive or from serving, subject to the prior approval of the Company's Board of Directors, as a member of boards of directors or as a trustee of any other corporation, association or entity (provided, that, no such prior approval shall be required for any such boards on which Executive shall currently serve). For purposes of the preceding sentence, any approval of the Company's Board of Directors required herein shall not be unreasonably withheld. (b) Term. Unless sooner terminated pursuant to Section 2.3, the term of Executive's employment pursuant to this Agreement shall commence on the Effective Date and shall continue thereafter for a period of the later of two years or until the payment in full of all amounts outstanding under the Promissory Note (the "Term"). Executive and the Company understand and acknowledge that Executive's employment with the Company constitutes "at-will" employment. Subject to the Company's obligation to provide severance benefits as specified herein, Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without Cause or Good Reason, as those terms are defined below, at the option of either the Company or Executive. Section 2.2 Compensation. During the employment term under this Agreement, the Company shall compensate Executive as follows: (a) Base Salary. Subject to adjustment as set forth below, the Company will pay Executive while he is employed hereunder, an annualized base compensation of not less than One Hundred Sixty Thousand ($160,000.00) per year, payable in substantially equal semi-monthly installments, or more frequently in accordance with Company's usual payroll policy (the "Base Salary"). (b) Performance Bonus. Executive shall be entitled to a quarterly cash incentive bonus based upon the Compensation Committee's approved performance objectives. Such bonus compensation shall be based, in part, on the achievement of performance criteria established by the Compensation Committee, including criteria relating to the profitability of the Company. Both parties shall mutually agree upon a sliding performance scale between $0 and 1/4 of annual salary per quarter. (c) Participation in Company Stock Ownership Plan. During the period of Executive's employment, Executive will be entitled to participate in the Company's Stock Option Plan (or such other successor plan), as the Board of Directors or Compensation Committee, in its sole discretion, may determine. (d) Benefits. Executive will be eligible to participate in all benefit programs of the Company which are in effect for its senior executive personnel and, to the extent available to executive personnel, its employees generally from time to time. (e) Vacation. Executive will be entitled each year to vacation for a period or periods not inconsistent with the normal policy of Company in effect from time to time, but in any event not less than fifteen (15) vacation days each year and to such holidays as may be customarily afforded to its employees by the Company, during which periods Executive's compensation shall be paid in full. Additionally, Executive will be entitled each year to sick leave or personal leave for a period or periods not inconsistent with the normal policy of Company in effect from time to time during which periods Executive's compensation shall be paid in full. (f) Reimbursement of Expenses. (i) All reasonable travel and entertainment expenses incurred by Executive in the course of fulfilling this Agreement or otherwise promoting the Company and its business shall be reimbursed by the Company. Such reimbursement shall be made to Executive promptly following submission to the Company of receipts and other documentation of such expenses reasonably satisfactory to the Company. (ii) In addition to the expenses reimbursable pursuant to paragraph (i) above, the Company shall also pay to Executive a monthly allowance of $125.00 for telephone expenses. Section 2.3 Termination. (a) Death and Legal Incapacity. Executive's employment hereunder shall terminate upon Executive's death or legal incapacity. (b) Disability. Executive's employment hereunder may be terminated by the Company in the event of Executive's Disability. As used in this Agreement, the term "Disability" shall mean the inability or failure of the Executive to perform the essential functions of the position for which he has been employed by the Company, for more than 90 consecutive days or for shorter periods aggregating more than 150 days in any period of 12 consecutive months, all as determined in good faith by a majority vote of the disinterested members of the Company's Board of Directors. Until such termination occurs, Executive shall continue to receive his Base Salary as then in effect, provided, however, that such salary shall be reduced to the extent of any short-term disability benefits provided to Executive under a short-term disability plan sponsored by the Company. (c) For Cause. Executive's employment hereunder may be terminated by the Company for cause ("Cause") upon the occurrence of any of the following events and in accordance with the time periods set forth below: (i) Executive's breach of any material duty or obligation hereunder, which breach continues or renews at any time after notice and a reasonable opportunity to desist or otherwise cure has been furnished; (ii) Executive is convicted or pleads guilty or nolo contendre to any felony (other than traffic violation) or any crime involving fraud, dishonesty or misappropriation; (iii) Executive willfully engages in misconduct that causes material harm to the Company; or (iv) The Executive willfully engages in an act that constitutes a conflict of interest with the Company or a usurpation of a business opportunity of the Company, in either case without the prior written approval of the Company's Board of Directors. The determination as to whether any of the foregoing Causes has occurred shall be made in good faith by the affirmative vote of at least 75% of the disinterested members of the Company's Board of Directors. No event shall be deemed a basis for Cause unless Executive is terminated therefore within 60 days after such event is known to the Chairman of the Company or if Executive is Chairman, known to the Chairman of any committee of the Board. (d) For Good Reason. Executive may terminate his employment hereunder for good reason ("Good Reason") if such termination occurs within sixty (60) days after: (i) The Company assigns to Executive any duties or responsibilities inconsistent with Section 2.1, which assignment is not withdrawn within 20 business days after Executive's notice to the Company of his reasonable objection thereto; (ii) Executive is relocated more than 40 miles from Huntsville, Alabama without his prior written consent; (iii) The Company breaches any material provision of this Agreement and such breach and the effects thereof are not remedied by the Company within 20 business days after Executive's notice to the Company of the existence of such breach; or 3 (iv) The Company breaches any material provision of the Purchase Agreement or the Promissory Note and such breach and the effects thereof are not remedied by the Company within any applicable notice and cure period (if any) set forth in the Purchase Agreement or Promissory Note. (e) Effect of Termination. (i) If the Company terminates Executive's employment for reasons other than for Cause, or for Executive's death or legal incapacity, or Disability, or if Executive terminates this Agreement for Good Reason, the obligations of Executive under this Agreement will terminate except that the covenants contained in Section 2.4(a) shall continue indefinitely, and the obligations in this section shall continue pursuant to their terms. In such event, for a period of six (6) months after the date of Executive's termination, the Company shall pay Executive, in accordance with customary payroll procedures, Executive's Base Salary as then in effect and, in addition, any Performance Bonus that Executive would have earned in the year he was terminated, prorated as of the date of termination. For such six-month period, the Company shall continue to provide medical coverage to Executive under substantially the same terms as were in effect on the date Executive's employment terminated under this provision. Additionally, any and all vested options, warrants or other securities awarded to Executive pursuant to the Company's Stock Option Plan or any other similar plan or other written option agreement shall, as of the date of Executive's termination, immediately vest and become exercisable and all such vested options, warrants or other securities shall remain exercisable by Executive for the duration of the period during which the options, warrants or other securities would have remained exercisable if Executive had remained employed by the Company. The amounts paid to Executive under this paragraph shall not be affected in any way by Executive's acceptance of other employment during the six-month period described above. (ii) Except as otherwise provided herein, if Executive terminates his employment for any reason other than Good Reason or Executive's employment is terminated for Cause, the obligations of Executive and the Company under this Agreement will terminate except that the covenants of Executive contained in Section 2.4(a) shall continue indefinitely and the covenants of Executive contained in Section 2.4(d) shall continue until the first anniversary of the date of Executive's termination. In such event, Executive shall be entitled to receive only the compensation hereunder accrued and unpaid as of the date of Executive's termination. (iii) If Executive's employment terminates due to a Disability, as defined in Section 2.3(b), the obligations of Executive under this Agreement will terminated except that the covenants in Section 2.4(a) shall continue indefinitely. In such event, for a period of one year after the date of Executive's termination, the Company shall pay Executive, in accordance with customary payroll procedures, Executive's Base Salary as then in effect, provided, however, that the payment of such salary shall be reduced to the extent of any long-term disability benefits provided to Executive under a long-term disability plan sponsored by the Company. The vesting and exercise of any and all options, warrants or other securities awarded to Executive pursuant to the Company's Stock Option Plan or any other similar plan shall be governed by the terms of such plan, or if awarded pursuant to a written option agreement, then the terms of such agreement. (iv) No amount payable to Executive pursuant to this Agreement shall be subject to mitigation due to Executive's acceptance or availability of other employment. 4 (f) Promissory Note. Notwithstanding anything herein to the contrary, if Executive's employment with the Company is terminated by the Company for any reason whatsoever, other than Disability or for cause, prior to the payment in full of all obligations under the Promissory Note, then the restrictions in Section 2.4(d) hereof shall terminate immediately. Section 2.4 Restrictive Covenants; Non-Competition. The parties hereto recognize that Executive's services are special and unique and that the level of compensation and the provisions herefor for compensation are partly in consideration of and conditioned upon Executive's not competing with the Company. (a) Except as otherwise permitted hereby, or by the Company's Board of Directors, Executive shall treat as confidential and not communicate or divulge to any other person or entity any information related to the Company or its affiliates or the business, affairs, prospects, financial condition or ownership of the Company or any of its affiliates (the "Information") acquired by Executive from the Company or the Company's other employees or agents, except (i) as may be required to comply with legal proceedings (provided, that, prior to such disclosure in legal proceedings Executive notifies the Company and reasonably cooperates with any efforts by the Company to limit the scope of such disclosure or to obtain confidential treatment thereof by the court or tribunal seeking such disclosure) or (ii) while employed by the Company, as Executive reasonably believes necessary in performing his duties. Executive shall use the Information only in connection with the performance of his duties hereunder, and not otherwise for his benefit or the benefit of any other person or entity. For the purposes of this Agreement, Information shall include, but not be limited to, any confidential information concerning clients, subscribers, marketing, business and operational methods of the Company or its affiliates and its affiliates' clients, subscribers, contracts, financial or other data, technical data or any other confidential or proprietary information possessed, owned or used by the Company. Excluded from Executive's obligations of confidentiality is any part of such Information that: (i) was in the public domain prior to the date of commencement of Executive's employment with the Company or (ii) enters the public domain other than as a result of Executive's breach of this covenant. This Section 2.4(a) shall survive the expiration or termination of the other provisions of this Agreement. (b) Executive shall fully disclose to the Company all discoveries, concepts, and ideas, whether or not patentable, including, but not limited to, processes, methods, formulas, and techniques, as well as improvements thereof or know-how related thereto (collectively, "Inventions") concerning or relating to the business conducted by the Company and concerning any present or prospective activities of the Company which are published, made or conceived by Executive, in whole or in part, during Executive's employment with the Company. (c) Executive shall make applications in due form for United States letters patent and foreign letters patent on such Inventions at the request of the Company and at its expense, but without additional compensation to Executive. Executive further agrees that any and all such Inventions shall be the absolute property of Company or its designees. Executive shall assign to the Company all of Executive's right, title and interest in any and all Inventions, execute any and all instruments and do any and all acts necessary or desirable in connection with any such application for letters patent or to establish and perfect in the Company the entire right, title, and interest in such Inventions, patent applications, or patents, and shall execute any instrument necessary or desirable in connection with any continuations, renewals, or reissues thereof or in the conduct of any related proceedings or litigation. 5 (d) During Executive's employment with the Company and for a period of one (1) year after the earlier of the expiration date of this Agreement or the termination of Executive's employment hereunder by the Company for Cause or by Executive (other than for Good Reason) or subsequent to a Change in Control, as hereinafter defined: (i) Executive will not, directly or indirectly, engage in, own or control an interest in (except as a passive investor in publicly held companies and except for investments held at the date hereof) or act as an officer, director, or employee of, or consultant or adviser to, any entity located in any state in which the Company provides or has provided its services or products (the "Covered Area"), that competes, directly or indirectly, with any of the products or services being offered or actively under consideration for offer during the term of Executive's employment with the Company; (ii) Executive will not recruit or hire any employee, independent contractor or vendor of the Company, or otherwise induce such employee, independent contractor or vendor to leave the Company, to become an employee of or otherwise be associated with Executive or any company or business with which Executive is or may become associated; and (iii) Executive will not solicit or accept from any customer or account of the Company existing at the time or within 12 months preceding the termination of Executive's employment with the Company, any business of the kind offered or conducted by the Company as of the termination of the Executive's employment with the Company. (e) If any portion of the restrictive covenants contained in this Section 2.4 are held to be unreasonable, arbitrary or against public policy, each covenant shall be considered divisible both as to time and geographic area, such that each month within the specified period shall be deemed a separate period of time and each county within the Covered Area shall be deemed a separate geographical area, resulting in an intended requirement that the longest lesser time and the largest lesser geographic area determined not to be unreasonable, arbitrary, or against public policy shall remain effective and be specifically enforceable against the Executive. (f) Each restrictive covenant on the part of the Executive set forth in this Agreement shall be construed as a covenant independent of any other covenant or provision of this Agreement or any other agreement which the Executive may have, whether fully performed or executory, and the existence of any claim or cause of action by the Executive against the Company whether predicated upon another covenant or provision of this Agreement or otherwise, shall not, unless otherwise allowed by applicable law, constitute a defense to the enforcement by the Company of any other covenant. (g) The period of time during which the Executive is prohibited from engaging in the practices identified in this Section 2.4 shall be extended by any length of time during which the Executive is in breach of such covenants. Section 2.5 Change of Control. In the event of a Change of Control, the following provisions shall apply: (a) If, immediately upon a Change of Control or at any time within one (1) year thereafter, Executive is no longer employed by the Company (or any entity to which this Agreement may be assigned in connection with such Change of Control) for any reason other than Executive's death, legal incapacity or Disability, Executive shall be entitled to receive, within 10 days after the termination date, a lump sum payment ("Change of Control Payment") equal to one half the amount of Executive's annual Base Salary then in effect plus any other amounts accrued and unpaid as of the date of termination (i.e., earned bonuses, 6 car allowance, unreimbursed business expenses, and any other amount due to Executive under employee benefit or fringe benefit plans of the Company). Notwithstanding the foregoing, if Executive shall so request, any Change of Control Payment may be paid to Executive in substantially equal monthly installments, or more frequently in accordance with the Company's usual payroll policy. Additionally, any and all options, warrants or other securities awarded to Executive pursuant to the Company's Stock Option Plan or any other similar plan shall, as of the date of Executive's termination, immediately vest and become exercisable by Executive for the duration of the period during which the options, warrants or other securities would have remained exercisable if Executive had remained employed by the Company. (b) For purposes of this Section 2.5, a "Change of Control" shall be deemed to occur upon any of the following events: (i) Any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act (i) becomes the "beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of 50% or more of the combined voting power of the Company's then outstanding securities, otherwise than through a transaction or series of related transactions arranged by, or consummated with the prior approval of, the Board or (ii) acquires by proxy or otherwise the right to vote 50% or more of the then outstanding voting securities of the Company, otherwise than through an arrangement or arrangements consummated with the prior approval of the Board, for the election of directors, for any merger or consolidation of the Company or for any other matter or question. (ii) During any period of 12 consecutive months (not including any period prior to the adoption of this Section), Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For purposes of the preceding sentence, "Present Directors" shall mean individuals who at the beginning of such consecutive 12-month period were members of the Board, and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were Present Directors or New Directors. (iii) Consummation of (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of Stock immediately prior to the merger have the same proportion and ownership of common stock of the surviving corporation immediately after the merger or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; provided, that, the divestiture of less than substantially all of the assets of the Company in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control. For purposes of this Section 2.5(b), the rules of Section 318(a) of the Code and the regulations issued thereunder shall be used to determine stock ownership. (c) Excise Tax Gross-Up. If Executive becomes entitled to one or more payments (with a "payment" including the vesting of restricted stock, a stock option, or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan or agreement with the Company or any affiliated company (collectively, "Change of Control Payments"), which are or become subject to the tax ("Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to Executive at the time specified below such amount (the "Gross-up Payment") as 7 may be necessary to place Executive in the same after-tax position as if no portion of the Change of Control Payments and any amounts paid to Executive pursuant to this paragraph 5(c) had been subject to the Excise Tax. The Gross-up Payment shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax. For purposes of determining the amount of the Gross-up Payment, Executive shall be deemed: (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the year in which the Gross-up Payment is to be made; and (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Executive or otherwise realized as a benefit by Executive) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been used in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made, the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Change of Control Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined by counsel or auditors selected by the Company and reasonably acceptable to Executive, of the minimum amount of such payments. The Company shall pay to Executive the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). The Company shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereon); provided, however, that the Company's control over any such proceedings shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder, and Executive shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. Executive shall cooperate with the Company in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-up Payment hereunder. Section 2.6 No Violation. Executive warrants that the execution and delivery of this Agreement and the performance of his duties hereunder will not violate the terms of any other agreement to which he is a party or by which he is bound. Additionally, Executive warrants that Executive has not brought and will not bring to the Company or use in the performance of Executive's responsibilities at the Company any materials or documents of a former employer that are not generally available to the public, unless Executive has obtained express written authorization from the former employer for their possession and use. Executive represents that he is not and, since the commencement of Executive's employment with the Company has not been a party to any employment, proprietary information, confidentiality, or noncompetition non-competition agreement with any of Executive's former employers which remains in effect as the date hereof. The warranties set forth in this Section 2.6 shall survive the expiration or termination of the other provisions of this Agreement. 8 Section 2.7 Breach by Executive. Both parties recognize that the services to be rendered under this Agreement by Executive are special, unique and extraordinary in character, and that in the event of the breach by Executive of the terms and conditions of this Agreement to be performed by him or in the event Executive performs services for any person, firm or corporation engaged in a competing line of business with Company, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, whether in law or in equity, to, by way of illustration and not limitation, obtain damages for any breach of this Agreement, or to enforce the specific performance thereof by Executive, or to enjoin Executive from competing with the Company or, performing services for himself or any such other person, firm or corporation. The Company may obtain an injunction restraining any such breach by Executive and no bond or other security shall be required in connection therewith. The Company and Executive each consent to the jurisdiction of United States Federal District Court for the Northern District of Alabama. Section 2.8 Miscellaneous. (a) This Agreement shall be binding upon and inure to the benefit of the Company, its successors, and assigns and may not be assigned by Executive. (b) This Agreement contains the entire agreement of the parties hereto and supersedes all prior or concurrent agreements, whether oral or written, relating to the subject matter hereof. This Agreement may be amended only by a writing signed by the party against whom enforcement is sought. (c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ALABAMA WITHOUT REGARD TO ITS CONFLICTS OF LAWS, RULES OR PRINCIPLES. (d) Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed effective when delivered in person or, if mailed, on the date of deposit in the mails, postage prepaid, to the other party at the respective address of such party set forth herein or to such other address as shall have been specified in writing by either party to the other in accordance herewith. (e) The provisions of Sections 2.4(a), 2.4(d) and 2.6 and the other provisions of this Agreement which by their terms contemplate survival of the termination of this Agreement, shall survive termination of this Agreement and be deemed to be independent covenants. (f) If any term or provision of this Agreement or its application to any person or circumstance is to any extent invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision shall be valid and enforced to the fullest extent permitted by law. (g) Except as specified herein, no delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy or shall be construed to be a waiver of or an acquiescence to any breach hereof. No waiver of any breach of this Agreement shall be deemed to be a waiver of any other breach of this Agreement theretofore or thereafter occurring. Any waiver of any provision hereof shall be effective only to the extent specifically set forth in the applicable writing. All remedies afforded under this Agreement to any party hereto, by law or otherwise, shall be cumulative and not alternative and shall not preclude assertion by any party hereto of any other rights or the seeking of any other rights or remedies against any other party hereto. 9 (h) It is the intent of the Company that Executive not be required to incur any legal fees or disbursements associated with (i) the interpretation of any provision in, or obtaining of any right or benefit under this Agreement, or (ii) the enforcement of his rights under this Agreement, including, without limitation by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits to be extended to Executive hereunder. Accordingly, the Company irrevocably authorizes Executive from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent Executive in connection with the interpretation and/or enforcement of this Agreement, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company, or any Director, officer, stockholder, or any other person affiliated with the Company in any jurisdiction. The Company shall pay or cause to be paid and shall be solely responsible for any and all reasonable attorneys' and related fees and expenses incurred by Executive under this Section 2.8(h). (i) The Background section of this Agreement is hereby incorporated into the Operative Provisions of this Agreement. Section 2.9 Indemnification. The Company agrees to indemnify Executive to the fullest extent permitted by applicable law, as such law may be hereafter amended, modified or supplemented and to the fullest extent permitted by each of the Company's Restated Certificate of Incorporation and the Company's Restated By-Laws, as from time to time amended, modified or supplemented. The Company further agrees that Executive is entitled to the benefits of any directors and officers' liability insurance policy, in accordance with the terms and conditions of that policy, if such a policy is maintained by the Company. [Signature page to follow.] 10 [Signature page of Employment Agreement.] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first stated above. COMPANY: -------- DIGITAL FUSION, INC. By: /s/ Gary S. Ryan ------------------------------------- Its: President EXECUTIVE: ---------- /s/ Michael W. Wicks ------------------------------------------ Michael W. Wicks 11 EX-10.8 9 a4846993ex10_8.txt EXHIBIT 10.8 Exhibit 10.8 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, effective as of January 3, 2005 (the "Effective Date"), is made by and between DIGITAL FUSION, INC., a Delaware corporation (the "Company") with its corporate offices at 4940-A Corporate Drive, Huntsville, Alabama 35805, and STEVEN L. THORNTON (the "Executive"), residing at 5100 Panorama Drive, Huntsville, Alabama 35801. ARTICLE 1 BACKGROUND INFORMATION ---------------------- As to the Effective Date the Company is acquiring Summit Research Corporation, an Alabama corporation, pursuant to that certain Stock Purchase Agreement, dated October 28, 2004, by and between the Company and Michael W. Wicks (the "Purchase Agreement"). As part of the consideration paid pursuant to the Purchase Agreement, the Company is issuing to Michael W. Wicks a Convertible Promissory Note dated as of the Effective Date (the "Promissory Note"; as used herein, the term "Promissory Note" shall include any and all extensions, amendments, restatements or modifications of the original Promissory Note). Michael W. Wicks shall assign a portion of the Promissory Note to Executive in the original principal amount of $500,000 on or prior to January 19, 2005 (the "Executive Promissory Note"). Additionally, as part of the Purchase Agreement, the Company and Executive wish to enter into an employment agreement upon the terms and conditions set forth herein. Therefore, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 2 OPERATIVE PROVISIONS -------------------- Section 2.1 Employment; Term. (a) Employment. Subject to the terms and conditions set forth herein, the Company agrees to employ and Executive agrees to serve as the Company's Executive Vice President, Summit Research, a division of Digital Fusion. During the term of employment, Executive shall have such responsibilities, duties and authorities as commensurate with companies of similar size, and additionally, such responsibilities, duties and authorities as may be assigned to the Executive by the Company's President, provided, that, the same is not inconsistent with such position. Executive agrees that he will use his full business time to promote the interests of the Company and its affiliates and to fulfill his duties hereunder. Notwithstanding the foregoing, Executive will contribute approximately $112,500.00 of his direct labor per year in personal billing coverage. Billing coverage is subject to change upon mutual written agreement. Nothing in this Agreement shall however preclude Executive from engaging, so long as, in the reasonable determination of the Company's Board of Directors, such activities do not interfere with the execution of his duties and responsibilities hereunder, in charitable and community affairs, from managing any passive investment made by Executive or from serving, subject to the prior approval of the Company's Board of Directors, as a member of boards of directors or as a trustee of any other corporation, association or entity (provided, that, no such prior approval shall be required for any such boards on which Executive shall currently serve). For purposes of the preceding sentence, any approval of the Company's Board of Directors required herein shall not be unreasonably withheld. (b) Term. Unless sooner terminated pursuant to Section 2.3, the term of Executive's employment pursuant to this Agreement shall commence on the Effective Date and shall continue thereafter for a period of the later of two years or until the payment in full of all amounts outstanding under the Executive Promissory Note (the "Term"). Executive and the Company understand and acknowledge that Executive's employment with the Company constitutes "at-will" employment. Subject to the Company's obligation to provide severance benefits as specified herein, Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without Cause or Good Reason, as those terms are defined below, at the option of either the Company or Executive. Section 2.2 Compensation. During the employment term under this Agreement, the Company shall compensate Executive as follows: (a) Base Salary. Subject to adjustment as set forth below, the Company will pay Executive while he is employed hereunder, an annualized base compensation of not less than One Hundred Fifty Thousand ($150,000.00) per year, payable in substantially equal semi-monthly installments, or more frequently in accordance with Company's usual payroll policy (the "Base Salary"). (b) Performance Bonus. Executive shall be entitled to a quarterly cash incentive bonus based upon the Compensation Committee's approved performance objectives. Such bonus compensation shall be based, in part, on the achievement of performance criteria established by the Compensation Committee, including criteria relating to the profitability of the Company. Both parties shall mutually agree upon a sliding performance scale between $0 and 1/4 of annual salary per quarter. (c) Participation in Company Stock Ownership Plan. During the period of Executive's employment, Executive will be entitled to participate in the Company's Stock Option Plan (or such other successor plan), as the Board of Directors or Compensation Committee, in its sole discretion, may determine. (d) Benefits. Executive will be eligible to participate in all benefit programs of the Company which are in effect for its senior executive personnel and, to the extent available to executive personnel, its employees generally from time to time. (e) Vacation. Executive will be entitled each year to vacation for a period or periods not inconsistent with the normal policy of Company in effect from time to time, but in any event not less than fifteen (15) vacation days each year and to such holidays as may be customarily afforded to its employees by the Company, during which periods Executive's compensation shall be paid in full. Additionally, Executive will be entitled each year to sick leave or personal leave for a period or periods not inconsistent with the normal policy of Company in effect from time to time during which periods Executive's compensation shall be paid in full. (f) Reimbursement of Expenses. (i) All reasonable travel and entertainment expenses incurred by Executive in the course of fulfilling this Agreement or otherwise promoting the Company and its business shall be reimbursed by the Company. Such reimbursement shall be made to Executive promptly following submission to the Company of receipts and other documentation of such expenses reasonably satisfactory to the Company. (ii) In addition to the expenses reimbursable pursuant to paragraph (i) above, the Company shall also pay to Executive a monthly allowance of $125.00 for telephone expenses. 2 Section 2.3 Termination. (a) Death and Legal Incapacity. Executive's employment hereunder shall terminate upon Executive's death or legal incapacity. (b) Disability. Executive's employment hereunder may be terminated by the Company in the event of Executive's Disability. As used in this Agreement, the term "Disability" shall mean the inability or failure of the Executive to perform the essential functions of the position for which he has been employed by the Company, for more than 90 consecutive days or for shorter periods aggregating more than 150 days in any period of 12 consecutive months, all as determined in good faith by a majority vote of the disinterested members of the Company's Board of Directors. Until such termination occurs, Executive shall continue to receive his Base Salary as then in effect, provided, however, that such salary shall be reduced to the extent of any short-term disability benefits provided to Executive under a short-term disability plan sponsored by the Company. (c) For Cause. Executive's employment hereunder may be terminated by the Company for cause ("Cause") upon the occurrence of any of the following events and in accordance with the time periods set forth below: (i) Executive's breach of any material duty or obligation hereunder, which breach continues or renews at any time after notice and a reasonable opportunity to desist or otherwise cure has been furnished; (ii) Executive is convicted or pleads guilty or nolo contendre to any felony (other than traffic violation) or any crime involving fraud, dishonesty or misappropriation; (iii) Executive willfully engages in misconduct that causes material harm to the Company; or (iv) The Executive willfully engages in an act that constitutes a conflict of interest with the Company or a usurpation of a business opportunity of the Company, in either case without the prior written approval of the Company's Board of Directors. The determination as to whether any of the foregoing Causes has occurred shall be made in good faith by the affirmative vote of at least 75% of the disinterested members of the Company's Board of Directors. No event shall be deemed a basis for Cause unless Executive is terminated therefore within 60 days after such event is known to the Chairman of the Company or if Executive is Chairman, known to the Chairman of any committee of the Board. (d) For Good Reason. Executive may terminate his employment hereunder for good reason ("Good Reason") if such termination occurs within sixty (60) days after: (i) The Company assigns to Executive any duties or responsibilities inconsistent with Section 2.1, which assignment is not withdrawn within 20 business days after Executive's notice to the Company of his reasonable objection thereto; (ii) Executive is relocated more than 40 miles from Huntsville, Alabama without his prior written consent; (iii) The Company breaches any material provision of this Agreement and such breach and the effects thereof are not remedied by the Company within 20 business days after Executive's notice to the Company of the existence of such breach; or 3 (iv) The Company breaches any material provision of the Executive Promissory Note and such breach and the effects thereof are not remedied by the Company within any applicable notice and cure period (if any) set forth in the Executive Promissory Note. (e) Effect of Termination. (i) If the Company terminates Executive's employment for reasons other than for Cause, or for Executive's death or legal incapacity, or Disability, or if Executive terminates this Agreement for Good Reason, the obligations of Executive under this Agreement will terminate except that the covenants contained in Section 2.4(a) shall continue indefinitely, and the obligations in this section shall continue pursuant to their terms. In such event, for a period of six (6) months after the date of Executive's termination, the Company shall pay Executive, in accordance with customary payroll procedures, Executive's Base Salary as then in effect and, in addition, any Performance Bonus that Executive would have earned in the year he was terminated, prorated as of the date of termination. For such six-month period, the Company shall continue to provide medical coverage to Executive under substantially the same terms as were in effect on the date Executive's employment terminated under this provision. Additionally, any and all vested options, warrants or other securities awarded to Executive pursuant to the Company's Stock Option Plan or any other similar plan or other written option agreement shall, as of the date of Executive's termination, immediately vest and become exercisable and all such vested options, warrants or other securities shall remain exercisable by Executive for the duration of the period during which the options, warrants or other securities would have remained exercisable if Executive had remained employed by the Company. The amounts paid to Executive under this paragraph shall not be affected in any way by Executive's acceptance of other employment during the six-month period described above. (ii) Except as otherwise provided herein, if Executive terminates his employment for any reason other than Good Reason or Executive's employment is terminated for Cause, the obligations of Executive and the Company under this Agreement will terminate except that the covenants of Executive contained in Section 2.4(a) shall continue indefinitely and the covenants of Executive contained in Section 2.4(d) shall continue until the first anniversary of the date of Executive's termination. In such event, Executive shall be entitled to receive only the compensation hereunder accrued and unpaid as of the date of Executive's termination. (iii) If Executive's employment terminates due to a Disability, as defined in Section 2.3(b), the obligations of Executive under this Agreement will terminated except that the covenants in Section 2.4(a) shall continue indefinitely. In such event, for a period of one year after the date of Executive's termination, the Company shall pay Executive, in accordance with customary payroll procedures, Executive's Base Salary as then in effect, provided, however, that the payment of such salary shall be reduced to the extent of any long-term disability benefits provided to Executive under a long-term disability plan sponsored by the Company. The vesting and exercise of any and all options, warrants or other securities awarded to Executive pursuant to the Company's Stock Option Plan or any other similar plan shall be governed by the terms of such plan, or if awarded pursuant to a written option agreement, then the terms of such agreement. (iv) No amount payable to Executive pursuant to this Agreement shall be subject to mitigation due to Executive's acceptance or availability of other employment. 4 (f) Executive Promissory Note. Notwithstanding anything herein to the contrary, if Executive's employment with the Company is terminated by the Company for any reason whatsoever, other than Disability or for cause, prior to the payment in full of all obligations under the Executive Promissory Note, then the restrictions in Section 2.4(d) hereof shall terminate immediately. Section 2.4 Restrictive Covenants; Non-Competition. The parties hereto recognize that Executive's services are special and unique and that the level of compensation and the provisions herefor for compensation are partly in consideration of and conditioned upon Executive's not competing with the Company. (a) Except as otherwise permitted hereby, or by the Company's Board of Directors, Executive shall treat as confidential and not communicate or divulge to any other person or entity any information related to the Company or its affiliates or the business, affairs, prospects, financial condition or ownership of the Company or any of its affiliates (the "Information") acquired by Executive from the Company or the Company's other employees or agents, except (i) as may be required to comply with legal proceedings (provided, that, prior to such disclosure in legal proceedings Executive notifies the Company and reasonably cooperates with any efforts by the Company to limit the scope of such disclosure or to obtain confidential treatment thereof by the court or tribunal seeking such disclosure) or (ii) while employed by the Company, as Executive reasonably believes necessary in performing his duties. Executive shall use the Information only in connection with the performance of his duties hereunder, and not otherwise for his benefit or the benefit of any other person or entity. For the purposes of this Agreement, Information shall include, but not be limited to, any confidential information concerning clients, subscribers, marketing, business and operational methods of the Company or its affiliates and its affiliates' clients, subscribers, contracts, financial or other data, technical data or any other confidential or proprietary information possessed, owned or used by the Company. Excluded from Executive's obligations of confidentiality is any part of such Information that: (i) was in the public domain prior to the date of commencement of Executive's employment with the Company or (ii) enters the public domain other than as a result of Executive's breach of this covenant. This Section 2.4(a) shall survive the expiration or termination of the other provisions of this Agreement. (b) Executive shall fully disclose to the Company all discoveries, concepts, and ideas, whether or not patentable, including, but not limited to, processes, methods, formulas, and techniques, as well as improvements thereof or know-how related thereto (collectively, "Inventions") concerning or relating to the business conducted by the Company and concerning any present or prospective activities of the Company which are published, made or conceived by Executive, in whole or in part, during Executive's employment with the Company. (c) Executive shall make applications in due form for United States letters patent and foreign letters patent on such Inventions at the request of the Company and at its expense, but without additional compensation to Executive. Executive further agrees that any and all such Inventions shall be the absolute property of Company or its designees. Executive shall assign to the Company all of Executive's right, title and interest in any and all Inventions, execute any and all instruments and do any and all acts necessary or desirable in connection with any such application for letters patent or to establish and perfect in the Company the entire right, title, and interest in such Inventions, patent applications, or patents, and shall execute any instrument necessary or desirable in connection with any continuations, renewals, or reissues thereof or in the conduct of any related proceedings or litigation. (d) During Executive's employment with the Company and for a period of one (1) year after the earlier of the expiration date of this Agreement or the termination of Executive's employment hereunder by the Company for Cause or by Executive (other than for Good Reason) or subsequent to a Change in Control, as hereinafter defined: 5 (i) Executive will not, directly or indirectly, engage in, own or control an interest in (except as a passive investor in publicly held companies and except for investments held at the date hereof) or act as an officer, director, or employee of, or consultant or adviser to, any entity located in any state in which the Company provides or has provided its services or products (the "Covered Area"), that competes, directly or indirectly, with any of the products or services being offered or actively under consideration for offer during the term of Executive's employment with the Company; (ii) Executive will not recruit or hire any employee, independent contractor or vendor of the Company, or otherwise induce such employee, independent contractor or vendor to leave the Company, to become an employee of or otherwise be associated with Executive or any company or business with which Executive is or may become associated; and (iii) Executive will not solicit or accept from any customer or account of the Company existing at the time or within 12 months preceding the termination of Executive's employment with the Company, any business of the kind offered or conducted by the Company as of the termination of the Executive's employment with the Company. (e) If any portion of the restrictive covenants contained in this Section 2.4 are held to be unreasonable, arbitrary or against public policy, each covenant shall be considered divisible both as to time and geographic area, such that each month within the specified period shall be deemed a separate period of time and each county within the Covered Area shall be deemed a separate geographical area, resulting in an intended requirement that the longest lesser time and the largest lesser geographic area determined not to be unreasonable, arbitrary, or against public policy shall remain effective and be specifically enforceable against the Executive. (f) Each restrictive covenant on the part of the Executive set forth in this Agreement shall be construed as a covenant independent of any other covenant or provision of this Agreement or any other agreement which the Executive may have, whether fully performed or executory, and the existence of any claim or cause of action by the Executive against the Company whether predicated upon another covenant or provision of this Agreement or otherwise, shall not, unless otherwise allowed by applicable law, constitute a defense to the enforcement by the Company of any other covenant. (g) The period of time during which the Executive is prohibited from engaging in the practices identified in this Section 2.4 shall be extended by any length of time during which the Executive is in breach of such covenants. Section 2.5 Change of Control. In the event of a Change of Control, the following provisions shall apply: (a) If, immediately upon a Change of Control or at any time within one (1) year thereafter, Executive is no longer employed by the Company (or any entity to which this Agreement may be assigned in connection with such Change of Control) for any reason other than Executive's death, legal incapacity or Disability, Executive shall be entitled to receive, within 10 days after the termination date, a lump sum payment ("Change of Control Payment") equal to one half the amount of Executive's annual Base Salary then in effect plus any other amounts accrued and unpaid as of the date of termination (i.e., earned bonuses, car allowance, unreimbursed business expenses, and any other amount due to Executive under employee benefit or fringe benefit plans of the Company). Notwithstanding the foregoing, if Executive shall so request, any Change of Control Payment may be paid to Executive in substantially equal monthly 6 installments, or more frequently in accordance with the Company's usual payroll policy. Additionally, any and all options, warrants or other securities awarded to Executive pursuant to the Company's Stock Option Plan or any other similar plan shall, as of the date of Executive's termination, immediately vest and become exercisable by Executive for the duration of the period during which the options, warrants or other securities would have remained exercisable if Executive had remained employed by the Company. (b) For purposes of this Section 2.5, a "Change of Control" shall be deemed to occur upon any of the following events: (i) Any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act (i) becomes the "beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of 50% or more of the combined voting power of the Company's then outstanding securities, otherwise than through a transaction or series of related transactions arranged by, or consummated with the prior approval of, the Board or (ii) acquires by proxy or otherwise the right to vote 50% or more of the then outstanding voting securities of the Company, otherwise than through an arrangement or arrangements consummated with the prior approval of the Board, for the election of directors, for any merger or consolidation of the Company or for any other matter or question. (ii) During any period of 12 consecutive months (not including any period prior to the adoption of this Section), Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For purposes of the preceding sentence, "Present Directors" shall mean individuals who at the beginning of such consecutive 12-month period were members of the Board, and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were Present Directors or New Directors. (iii) Consummation of (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of Stock immediately prior to the merger have the same proportion and ownership of common stock of the surviving corporation immediately after the merger or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; provided, that, the divestiture of less than substantially all of the assets of the Company in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control. For purposes of this Section 2.5(b), the rules of Section 318(a) of the Code and the regulations issued thereunder shall be used to determine stock ownership. (c) Excise Tax Gross-Up. If Executive becomes entitled to one or more payments (with a "payment" including the vesting of restricted stock, a stock option, or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan or agreement with the Company or any affiliated company (collectively, "Change of Control Payments"), which are or become subject to the tax ("Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to Executive at the time specified below such amount (the "Gross-up Payment") as may be necessary to place Executive in the same after-tax position as if no portion of the Change of Control Payments and any amounts paid to Executive pursuant to this paragraph 5(c) had been subject to the Excise Tax. The Gross-up Payment shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax. For purposes of 7 determining the amount of the Gross-up Payment, Executive shall be deemed: (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the year in which the Gross-up Payment is to be made; and (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Executive or otherwise realized as a benefit by Executive) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been used in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made, the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Change of Control Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined by counsel or auditors selected by the Company and reasonably acceptable to Executive, of the minimum amount of such payments. The Company shall pay to Executive the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). The Company shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, the Company may pursue or forego any and all administrative appeals, proceedings, hearings, and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereon); provided, however, that the Company's control over any such proceedings shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder, and Executive shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. Executive shall cooperate with the Company in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-up Payment hereunder. Section 2.6 No Violation. Executive warrants that the execution and delivery of this Agreement and the performance of his duties hereunder will not violate the terms of any other agreement to which he is a party or by which he is bound. Additionally, Executive warrants that Executive has not brought and will not bring to the Company or use in the performance of Executive's responsibilities at the Company any materials or documents of a former employer that are not generally available to the public, unless Executive has obtained express written authorization from the former employer for their possession and use. Executive represents that he is not and, since the commencement of Executive's employment with the Company has not been a party to any employment, proprietary information, confidentiality, or noncompetition non-competition agreement with any of Executive's former employers which remains in effect as the date hereof. The warranties set forth in this Section 2.6 shall survive the expiration or termination of the other provisions of this Agreement. 8 Section 2.7 Breach by Executive. Both parties recognize that the services to be rendered under this Agreement by Executive are special, unique and extraordinary in character, and that in the event of the breach by Executive of the terms and conditions of this Agreement to be performed by him or in the event Executive performs services for any person, firm or corporation engaged in a competing line of business with Company, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, whether in law or in equity, to, by way of illustration and not limitation, obtain damages for any breach of this Agreement, or to enforce the specific performance thereof by Executive, or to enjoin Executive from competing with the Company or, performing services for himself or any such other person, firm or corporation. The Company may obtain an injunction restraining any such breach by Executive and no bond or other security shall be required in connection therewith. The Company and Executive each consent to the jurisdiction of United States Federal District Court for the Northern District of Alabama. Section 2.8 Miscellaneous. (a) This Agreement shall be binding upon and inure to the benefit of the Company, its successors, and assigns and may not be assigned by Executive. (b) This Agreement contains the entire agreement of the parties hereto and supersedes all prior or concurrent agreements, whether oral or written, relating to the subject matter hereof. This Agreement may be amended only by a writing signed by the party against whom enforcement is sought. (c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ALABAMA WITHOUT REGARD TO ITS CONFLICTS OF LAWS, RULES OR PRINCIPLES. (d) Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed effective when delivered in person or, if mailed, on the date of deposit in the mails, postage prepaid, to the other party at the respective address of such party set forth herein or to such other address as shall have been specified in writing by either party to the other in accordance herewith. (e) The provisions of Sections 2.4(a), 2.4(d) and 2.6 and the other provisions of this Agreement which by their terms contemplate survival of the termination of this Agreement, shall survive termination of this Agreement and be deemed to be independent covenants. (f) If any term or provision of this Agreement or its application to any person or circumstance is to any extent invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision shall be valid and enforced to the fullest extent permitted by law. (g) Except as specified herein, no delay or omission to exercise any right, power or remedy accruing to any party hereto shall impair any such right, power or remedy or shall be construed to be a waiver of or an acquiescence to any breach hereof. No waiver of any breach of this Agreement shall be deemed to be a waiver of any other breach of this Agreement theretofore or thereafter occurring. Any waiver of any provision hereof shall be effective only to the extent specifically set forth in the applicable writing. All remedies afforded under this Agreement to any party hereto, by law or otherwise, shall be cumulative and not alternative and shall not preclude assertion by any party hereto of any other rights or the seeking of any other rights or remedies against any other party hereto. 9 (h) It is the intent of the Company that Executive not be required to incur any legal fees or disbursements associated with (i) the interpretation of any provision in, or obtaining of any right or benefit under this Agreement, or (ii) the enforcement of his rights under this Agreement, including, without limitation by litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits to be extended to Executive hereunder. Accordingly, the Company irrevocably authorizes Executive from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent Executive in connection with the interpretation and/or enforcement of this Agreement, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company, or any Director, officer, stockholder, or any other person affiliated with the Company in any jurisdiction. The Company shall pay or cause to be paid and shall be solely responsible for any and all reasonable attorneys' and related fees and expenses incurred by Executive under this Section 2.8(h). (i) The Background section of this Agreement is hereby incorporated into the Operative Provisions of this Agreement. Section 2.9 Indemnification. The Company agrees to indemnify Executive to the fullest extent permitted by applicable law, as such law may be hereafter amended, modified or supplemented and to the fullest extent permitted by each of the Company's Restated Certificate of Incorporation and the Company's Restated By-Laws, as from time to time amended, modified or supplemented. The Company further agrees that Executive is entitled to the benefits of any directors and officers' liability insurance policy, in accordance with the terms and conditions of that policy, if such a policy is maintained by the Company. [Signature page to follow.] 10 [Signature page of Employment Agreement.] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first stated above. COMPANY: DIGITAL FUSION, INC. By: /s/ Gary S. Ryan ----------------------------------------- Its: President EXECUTIVE: /s/ Steven L. Thornton -------------------------------------------- Steven L. Thornton 11 -----END PRIVACY-ENHANCED MESSAGE-----